Time to fix my BTL mortgage rate?
Following the election result. many landlords are breathing a sigh of relief. Economic stability looks to have been maintained and landlords are starting to consider what threats and what opportunities lie on the horizon.
One big question is how to respond to this current benign interest rate environment. Do landlords risk complacency by believing that these historically low interest rates are here to stay?
Current interest rates
The MPC (Monetary Policy Committee) in May were again unanimous in their decision to keep rates on hold at 0.5%. Inflation has recently dropped below zero prompting a period of deflation in the economy. This is also below the 2% target rate and 1% limit set by the Monetary Policy Framework
No change at the moment but when will rates rise?
Forecasts are now indicating the first movement in interest rates will come in 2016.
Mortgage rate changes
Fixed rate mortgages are at historically low levels. Data released by Moneyfacts earlier this year showed that the average fixed rate buy-to-let mortgage was priced at 3.82% across all terms. This marked a reduction of 0.4% in the last year.
Fixed rate mortgages are a forward looking financial product and are based on the lenders projections of the future cost of money. The mechanisms for funding these products means that swap rates are often a good prediction of future fixed mortgage rates. Swap rates have been on the rise since dropping below 2% in April and are now approaching 2.5% indicating that markets expect long-term rates to rise.
Given that rates are so low should landlords be looking to lock in the historically low levels of borrowing? Well it’s a difficult call given that rates are predicted by economists such as Howard Archer ( Chief Economist at HIS Global Insights) to still be below 2% by the end of 2017. However, by this stage the cheap long-term money may have gone and long-term fixed rates could already be ahead of the interest rate curve. On this basis Property Hawk Mortgages has looked at some of the best fixed term mortgage products available at the current time.
Best fixed rate buy-to-let products
Looking at the interest rate environment I wouldn’t advocate a short term fix rate unless there are advantages in terms of fees. Two products that meet this criteria are available from Natwest and Santander which both come without a completion fee. The Santander mortgage product also has the benefit of a free homebuyer valuation.
The Natwest buy-to-let mortgage has a pay rate of 3.08% and is fixed until 30/09/2017. The Santander mortgage is available up to a LTV of 75% but have a slightly higher pay rate of 3.64% and remain fixed until 2/09/2017.
Best 5 Year Fixed Rate Mortgages
For landlords that are looking to lock in an attractive fixed rate for the medium term either for a remortgage or new property purchase there is a good choice of products. Our favourites are always low or no fee products such as the Godiva 3.89% fixed rate mortgage fixed until 31/07/2020. This product, which is only available up to a 65% LTV also comes with no completion fee and a free valuation up to £700 for purchases and remortgages. Free legal fees are also available on remortgages.
For a higher LTV landlords could look at Fleet Mortgages 4.09% which has it’s rate fixed until 31/07/2020 and this mortgage product has a reasonable 1.0% completion fee.
Fixing for the long-term
For landlords who really want to take uncertainty on future rates totally out of the equation then they should look at the 10 year fixed rate product from The Mortgage Works. The mortgage is available up to 75% LTV is fixed all the way up to 31/08/2025 at 4.99%. There is a small completion fee of £995 but landlords have the certainty of a mortgage pay rate of less than 5% for a full 10 years. This low level would be unheard of just a few years ago.
For more landlord BTL Mortgage Finance advice check out the Landlords Bible.