The majority (93%) of landlords financing buy-to-let properties chose fixed rate products in the second quarter (Q2) of the year, according to the Buy-to-Let Mortgage Index from Mortgages for Business.
The specialist buy-to-let broker found that five-year fixed rate products, in particular, were the most popular choice for its landlords, with 69% of investors choosing this option.
David Whittaker, the CEO of Mortgages for Business, comments on the findings: “We’ve been recommending five-year fixed rates for a long time. At the moment, there is very little difference in pricing between fixed and variable rate products. In today’s uncertain economic climate, particularly the road crash Brexit negotiations, fixing makes a lot of sense, especially as the average price is just 3.52%. Why wouldn’t landlords make them a part of their business strategy?”
Arrangement fees
The index also found that an increasing number of lenders are offering mortgages free from arrangement fees. In Q2, a fifth of all products had no fee attached, which is up from 14% in Q3 2017.
This reflects a wider study by Moneyfacts.co.uk, which revealed that over a third of mortgages on the market (for all types of buyers) are now fee-free.
Other incentives were also on the rise, including: cash back, free valuations, and free legals for landlords remortgaging their properties.
The average flat arrangement fee, however, increased slightly in Q2, to £1,389. At less than £1,500, Mortgages for Business insists that this still represents reasonable value.
Limited company products
The index also shows that the number of lenders offering mortgages to landlords borrowing via a limited company increased by three in Q2 (The Mortgage Works, Kensington Mortgages and LendInvest). Half of all buy-to-let lenders now offer products to corporate landlords.
Remortgaging continues to outstrip purchases, although there were still more buy-to-let purchase transactions by landlords using limited companies.
Pricing and yields
Overall, Mortgages for Business reports that pricing remained fairly flat in Q2, despite a rise in swap rates. This suggests that lenders continue to absorb costs in order to remain competitive.
At an average of 8.6%, the broker found that Houses in Multiple Occupation (HMOs) produced the highest gross annual yields for landlords in Q2.