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BTL product numbers dip as rates start to rise

There appears to have been an increase in demand for buy-to-let property since the chancellor announced a stamp duty holiday, but there are also growing concerns about the state of the economy with the UK experiencing its first recession in 11 years, and this is reflected in how the BTL mortgage market has reacted. 

According to the latest research carried out by Moneyfacts.co.uk, BTL product choice has dropped month-on-month, with a fall of 78 products since the start of July, sitting at 1,660. But it is worth pointing out that this is an improvement when compared to the low of 1,455 deals available on 1 May 2020.

The average two- and five-year rates for all loan-to-value (LTV) brackets are marginally lower now than they were at the start of the coronavirus pandemic, down 0.05% and 0.13% to 2.72% and 3.11% respectively compared to 1 March.

Conversely, two- and five-year average rates in the 60% loan-to-value (LTV) bracket are up, and now sit 0.53% and 0.45% above where they were in March. Consequently, BTL landlords with higher levels of equity may wish to consider their mortgage options soon, before rates potentially increase further.

Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Over the last six months, the BTL sector has been a little more resilient than the residential market in terms of product choice. However, this sector has contracted since 1 July, with a fall of 78 products, leaving 1,660 deals available. While remaining some way below the 2,897 deals offered before the crisis took hold, it is important to note that this is still an improvement on the 1,455 products the market had reduced to as of 1 May this year.

“Now that the UK has officially fallen into a recession, some landlords could be concerned regarding the future of their beleaguered sector. However, the increase to the stamp duty land tax threshold will have come as welcome news to many landlords and potential investors in the sector, who may be enticed by the potential savings this offers.” 

Buy-to-let mortgage market analysis

Product numbers

Mar-20

Jul-20

Aug-20

17 Aug ‘20

BTL product count - fixed and variable rates

2,897

1,738

1,720

1,660

Two-year fixed rates BTL - all LTVs

914

625

625

596

Five-year fixed rates BTL - all LTVs

1,000

644

631

612

Average rates

Mar-20

Jul-20

Aug-20

17 Aug ‘20

BTL two-year fixed - all LTVs

2.77%

2.61%

2.66%

2.72%

 BTL two-year fixed - 80% LTV

3.56%

3.18%

3.51%

3.58%

 BTL two-year fixed - 60% LTV

1.89%

2.28%

2.35%

2.42%

BTL five-year fixed - all LTVs

3.24%

2.97%

3.06%

3.11%

 BTL five-year fixed - 80% LTV

3.98%

3.82%

3.82%

3.87%

 BTL five-year fixed - 60% LTV

2.31%

2.65%

2.73%

2.76%

Data shown is as at first working day of month, unless otherwise stated.     

Source: Moneyfacts.co.uk

The findings from a recent survey from ARLA Propertymark suggests that the number of new prospective tenants has increased to a 12-month high, which could be indicative of the fact that in times of economic uncertainty, many people tend to delay making significant financial commitments such as purchasing their own home, which could result in an increase in rental demand.

Another possible cause for positivity is demonstrated by the overall average rates for two- and five-year fixed rate BTL deals, according to Williams. 

She continued: “These [two- and five-year fixed rate BTL deals] are 2.72% and 3.11% respectively, which means that both rates are lower than they were in March, signifying that there are still competitive deals to be had in this current low base rate environment and an indication of an appetite to lend from providers in this sector. However, a note of caution, as since 1 August, average two and five-year rates have risen by 0.06% and 0.05% respectively – a fact that may prompt some investors to consider their options before these potentially increase further. 

“Five-year fixed-rate deals have remained particularly competitive, with both the average for all LTVs and the higher-risk 80% LTV bracket remaining 0.13% and 0.11% lower than the equivalent March rates. Those considering a new BTL mortgage deal may wish to lock into one that can offer longer-term payment stability and protection from future interest rate volatility. 

“Conversely, those borrowers who have a larger 40% deposit or equity will find that average rates have steadily increased since July, with the average two and five-year rates standing 0.53% and 0.45% higher respectively than in March; therefore, those with higher levels of equity may be wise to compare deals carefully. 

“Landlords looking to invest in the BTL sector could see this as an opportune time to explore their options, especially if they think that average rates may continue the upward trajectory we have witnessed over the last two months. 

“However, economically, we remain in unchartered waters, with many providers exercising caution in their underwriting, so landlords or potential investors should ensure they thoroughly research and plan ahead in order to protect their investments. 

“In these ever-fluid times, seeking advice and support from independent, qualified professionals could be invaluable in navigating their choices.” 

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