Landlords choose flexibility as 2-year fixes make a comeback
Flexibility was vital for landlords securing new buy-to-let (BTL) mortgages and remortgages at the end of 2019, according to the latest research. The number of buy-to-let landlords choosing a two-year fixed rate jumped from just 8% in the final quarter of 2018, to a substantial 26% in the same period of last year. Landlords were seeking shorter early repayment charge (ERC) periods, according to the Mortgages for Business (MfB) Buy-to-Let Mortgage Index, which enables them to refinance sooner without incurring a penalty.
Political uncertainty was most likely the driving factor, as the UK awaited the results of the December general election. Despite the surge in two-year fixes, the five-year fixed-rate mortgage remained the most popular choice for landlords, making up 68% of completions in the final quarter of 2019. But the market did look lively as trackers and discounted rate products saw a marginal increase in popularity, most likely due to the speculation of a reduction in the Bank of England base rate. Managing director of Mortgages for Business, Steve Olejnik, said: “Given we now have more certainty in the political system, we forecast that landlords may start to look at longer-term fixes again in the future.
” Lenders support the market Current reports suggest that thousands of landlords are planning to sell up ahead of the new tax year due to the increased tax burden; so the onus is on lenders to help make the sums for buy-to-let add up. The good news is that the number of buy-to-let products available has seen a massive increase from 72 to 1,981, and those available to limited companies up from 51 to 738, giving landlords plenty of choice. Plus, borrowers looking for longer-term fixes can still benefit from lenders' less rigorous stress tests compared to shorter-term products, meaning they can borrow more than with a shorter-term product.
Olejnik added: “More landlords are expanding their portfolios through a limited company which has proven to be a more effective borrowing vehicle both from a tax perspective and financially. Lenders have responded to that and demand has fuelled an increase in the number of products available.” There’s no doubt that the buy-to-let sector is undergoing severe change, but as Marc von Grundherr, of letting agents Benham and Reeves, says: “There's always going to be very strong demand for rental property.
Rental yields are still going up and so while there have been changes, those who stay in buy-to-let or are brave enough to enter it can do well.” Source: Landlords choose flexibility as 2-year fixes make a comeback