This week buy-to-lender Landbay announced it was making its first foray into the 10-year fixed rate market with new deals for buy-to-let landlords in response to an increasing demand for these kinds of products.
Paul Brett, managing director, intermediaries at Landbay, explained: “Now that the Monetary Policy Committee has voted to raise base rate at each of its last five meetings, more borrowers are considering longer-term fixed rates.
“The launch of our 10-year fixed rates are therefore timely and we know there will be demand for them.
At present there’s only a small group of lenders offering 10-year deals to landlords. Among them are household names such as Virgin Money.
Some of the deals are more specialist, for example they are aimed at commercial landlords or those running under a limited company structure so Landbay’s offerings will be a welcome addition.
Landbay’s mortgages include a range for standard properties and a ‘small’ HMO (houses in multiple occupation) deal which is for properties with up to six bedrooms. There’s also a ‘green’ 10-year mortgage for properties which have EPC ratings of A to C.
They are available to landlords with at least 24 months’ experience and they can be accessed via a broker or mortgage intermediary.
What are the benefits of a 10-year fixed rate for landlords?
So, what are the advantages of fixing your rate for 10 years? Rob Jupp, CEO of the Brightstar Group, one of the initial distributors of Landbay’s new range, said: “Fixing for 10 years makes sense for landlords who are investing for the long-term knowing their monthly payments will remain the same.
“But as rents increase over the next few years, so will their rental yield.”
Eleanor Williams, finance expert at Moneyfacts.co.uk, agreed stability and security from future rate rises were the key benefits here.
But she said they also reduce admin. “Another benefit of these deals is that they can help landlords to avoid the stress, and indeed the costs, involved in remortgaging while they are tied in to the deal,” she said.
What are the downsides of 10-year fixed rate deals for landlords?
Of course, being tied in for the long term won’t suit everyone and there are some pitfalls to consider before committing to one of the deals.
Eleanor explained they often have fairly significant early repayment charges or penalties if the mortgage is paid off while still in the initial deal period, so making sure to think about what their future plans are for their rental property and any flexibility they might need from their mortgage is imperative.”
Pricing is also a factor – Eleanor said longer-term fixed rates can be more expensive than shorter deals. It’s still a niche area of the market so the competition which drive down rates is still not quite there.
Eleanor said: “This means that securing the support and advice of a broker may well be invaluable if a landlord is considering one of these products.
“Even if a lender is offering a lower rate on a 10-year fixed product than on a shorter-term deal, whether or not that is the best deal for a landlord comes down to more than just the initial rate.”
How to access 10-year fixed-rate buy-to-let mortgages
As Eleanor mentioned, seeking advice from a broker is the first step you should take when looking at a 10-year fixed rate.
She added: “It’s important that landlords compare their options carefully, think about their future plans, and as always, take into account the overall, true cost of the whole mortgage package they are considering.”
What’s more, if you are nearing the end of your current deal and have decided the 10-year option is for you, you may want to sign up quickly.
Eleanor explained: “Following recent increases in the Bank of England base rate, landlords considering their next mortgage deal might want to consider their options sooner rather than later, as there is no guarantee that rates will not continue to climb as we move through 2022.
“We are seeing providers revise their product ranges frequently in order to react to a volatile market.”
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