Landlords are being advised to switch to five year mortgage products before prices rise.
The recommendation comes from specialist broker Mortgages for Business, who stated that increased competitive pressure during the course of 2013 has held down the true cost of three and five year fixed rate buy to let mortgages.
The report, entitled Buy to Let Mortgage Rates: The Real Costs Q4 2013, identified that three year costs are virtually the same as when swap rates bottomed out in April 2013 and five year costs are around 0.1 per cent p.a. higher than then. Yet three year swap rates have risen by over 0.75 per cent and five year swaps are 1 per cent higher since April last year.
Commenting on the findings, managing director of Mortgages for Business, David Whittaker, said: “Competition is set to intensify further still in 2014 – but ultimately lenders will have to recognise increasing cost of funds. So whilst lenders’ margins are likely to fall during 2014, it is highly likely that interest rates will rise on medium term fixed rate mortgages reflecting the impending rise in Bank Rate. That is why we maintain our advice to investors to consider taking out five year fixed rate mortgages.”
The report also found that in early 2008 over half of all buy to let mortgage products were at 85 per cent LTV (loan to value). Today, the dominant product range is now 75 per cent with significant product ranges. In other words, the product ranges are at 10 per cent lower LTV points now compared to six years ago.
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