An increasing number of landlords are opting for five-year fixed rate products, the latest Buy-to-Let Index from Mortgages for Business has found.
In Q4 2018, 84 per cent of landlords chose five-year fixes, up from 70 per cent in the previous quarter’s index.
The broker believes that the popularity of the products is likely linked to less stringent tests and the promise of a greater degree of stability in the current uncertain economic climate.
The research also unveiled that 97 per cent of landlords are opting for fixed rates
Mortgages for Business managing director Steve Olejnik says: “Whilst for landlords, the preference for five-year rates is both a protective measure and an opportunity to maximise borrowing, from a market perspective, it will reduce the volume of remortgaging over the next few years. Both lenders and brokers need to take this into account when projecting business growth.”
Along with the preference for five-year fixes, the index shows that more than half of all newly submitted BTL applications are from landlords using limited companies up from 44 per cent in Q3 2018.
By value, these applications accounted for 51 per cent of all requested borrowing, up from 39 per cent in the previous quarter. More than half of the BTL lenders tracked in the index now offer products to limited companies.
Olejnik says: “I expect the uptick in the use of limited companies to continue as landlords adjust their investment strategies to cope with the new tax environment and underwriting guidelines for lenders from the PRA.”
The way lenders charge borrowers has also changed. Nearly half of all products had a percentage-based arrangement fee attached, up from 42 per cent at the beginning of 2018. The reason is likely to be due to the market becoming increasingly specialist in nature.
The average flat fee rose too, from £1,423 a year ago to £1,506 – the first time the figure has risen above £1,500 since Q1 2016. At that time, the average flat fee rate stood at £1,556 when there was a rush of buy to let applications as landlords raced to complete transactions ahead of the introduction of a stamp duty surcharge on purchases of BTL property.