Greater uncertainty surrounding Brexit and other macroeconomic factors, along with regulatory changes in the buy to let market, are leading to landlords choosing longer fixed rate mortgages.
There has certainly been an increase in landlords choosing five and 10-year fixed deals over the past six months, and this trend looks set to continue in 2019.
Longer term mortgages are also appealing to landlords because they come with less stringent testing by the lenders, and landlords get the added security of knowing what their mortgage repayments will be over a longer period.
A five-year fixed buy-to-let mortgage usually comes with higher interest rates, higher fees and will require a larger deposit – usually at least 25% of the property value – 75% loan to value.
Landlords should be wary of the fees that lenders charge for arranging the mortgage. This needs to be considered when costing up the new mortgage. It is worth seeking guidance from a mortgage broker about whether it would be most cost effective for you to add the fees to the mortgage or pay them upfront.
Landlords will need the rent to be at least 125% of the mortgage payment to satisfy the lenders criteria, some lenders require 140% or 145% especially if you are a higher or additional rate tax payer.
Lenders have expanded their range of longer term buy-to-let products on the market and are providing some very competitive deals to attract buy to let landlords.
Skipton Building Society currently has one of the best rates on the market – a five-year fixed rate product at 2.02%, 60% loan to value, reverting to 5.19% at the end of the mortgage term. The product comes with a £1,995 completion fee.
Whilst mortgage rates have been rising over the past few months, and are expected to continue increasing this year, they are still low compared to where they were a few years ago.
Those looking for a longer fixed rate mortgage will find that 10-year fixed deals are also more competitive than they were last year. The Mortgage Works has a buy to let 10-year fixed mortgage at 2.74%, 65% LTV and a fee of £1,995. The product will revert to the lenders managed rate of 4.74% at the end of the term. The product also comes with £250 cashback upon completion.
Also, landlords could save money if they moved from their lender’s standard variable rate to a fixed rate mortgage. An average buy to let mortgage on a standard variable rate for a sum of £150,000 rose last year from £620 in September to £629 in October. This is compared to fixed deals which got cheaper towards the end of 2018.
To win over landlords, lenders are also offering landlords cashback incentives. Leeds Building Society has increased its cashback on two and five-year fixed rate buy to let products from £500 to £1,000.
If you’re coming to the end of your current fixed rate mortgage or are on the lender’s standard variable rate, speak to a mortgage broker about your mortgage options. Whether you have one buy to let property or five, they will be able to advise you on the best options for you.
By Michelle Niziol, CEO of IMS Property Group and Michelle Niziol Bespoke Property Investment
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