A growing number of landlords opting for two-year fixed rate products

There was a notable increase in the percentage of landlords selecting shorter-term buy-to-let mortgage products in the final quarter of last year compared to the same period in 2018. 

According to Mortgages for Business, the percentage of landlords opting for two-year fixed rate buy-to-let mortgage products hit a 12-month high in Q4 2019. 

Just over a quarter - 26% - of landlords opted for two-year fixed rates in the fourth quarter of last year, up from just 8% in the previous year.

Growth in the number of landlords opting for shorter-term rates has been driven in part by the shorter early repayment charge periods, which are typically attached to these types of products, allowing investors to refinance sooner without occurring a penalty. 

Some 95% of landlords chose fixed rates over a variable product, with 68% of those selecting a five-year fixed rate deals. This is mainly because lenders are still applying less stringent stress tests to longer-term products than to shorter-term deals which means landlords can borrow more using them than with their two or three-year counterparts.

The research also shows that there has been an increase in demand from landlords for tracker and discounted rate products, up from 2% in Q3 to 4% in Q4 2019. 

Steve Olejnik, managing director of Mortgages for Business, commented: “Recent political uncertainty has led more landlords to opt for 2-year fixed rates over longer-term fixed rate products.

“Landlords are drawn to the shorter early repayment charge periods associated with these types of products, which provide greater flexibility.

“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.”

Rates available to landlords borrowing via a limited company on average were 0.7% higher than those available to landlords borrowing personally.

The data also reveals that the number of products available to limited companies for both two-year and five-year fixed rates increased in Q4 2019, reaching 288 and 322 respectively.

Olejnik continued: “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.”

The number of buy-to-let mortgage products available increased by 72 to 1,981 in Q4 2019 up from 1,909 in the previous quarter.

In addition, the number of buy-to-let products available to limited companies rose by 51 to 738.

Olejnik added: “The increase in the number of products available to limited companies gives landlords more choice. Since Brexit was assured by the clear general election result in December, British house prices have risen at their fastest rate since 2002 according to Rightmove.

“HMOs continued to produce the most substantial yields for landlords handling more complex portfolios, in at 9.2% Q4 2019.”

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