Buy-to-let mortgage rates were largely unaffected by a sharp increase in swap rates in the final quarter of 2016, but this is unlikely to remain the case in 2017, as higher rates are eventually passed on to buy-to-let landlords, a leading mortgage exert has predicted.
The Q4 2016 results of Mortgages for Business’ Buy to Let Mortgage Costs Index reveals that while swap rates rose strongly in the last quarter of 2016, buy-to-let mortgage headline rates were largely unaffected, due mostly to Bank Rate remaining at its record low of 0.25%.
But David Whittaker, chief executive of Mortgages for Business, believes that lenders will have little alternative but to introduce higher buy-to-let rates in the coming months, especially for buy-to-let landlords borrowing in a limited company capacity.
He said: “With demand in the buy to let sector already under pressure from both fiscal and regulatory changes it is good to see that lenders have not further burdened landlords by increasing interest rates.
“However, with rising swap rates this situation cannot continue forever, and we would expect to see increases at some point in 2017 as lenders factor in the additional time spent on deeper background checks and assessing affordability, particularly from landlords borrowing in a limited company capacity.”
“Whether increases happen before 1st October when lenders will be obliged to be extra vigilant while assessing applications from portfolio landlords remains to be seen, but we will be watching the market closely in this respect.”
There was a shift towards products with percentage-based fees which accounted for 41% of buy to let mortgages in Q4, up 2% points on Q3.
Fee-free products also gained market share accounting for 16%, up from 14% in the previous quarter.
Products with flat fees lost ground for the third successive quarter, but perhaps of more interest is the fact their average price is now averaging just £1,397 compared to £1,556 at the beginning of 2016.