In historic terms, the buy to let sector of the mortgage market has offered a similar range of rate choices to borrowers to those available in the residential sector. However, the cost differential has consistently seen the pricing of interest rates for investment property at much loftier margins than its residential counterpart.
In the current market this trend appears to be reversed, as the increase in interest in the buy to let sector is encouraging wholesale rate reductions, particularly for fixed rate propositions. Interest has been high over the past 6-12 months for fixed options across the mortgage market, with the warning that the Bank of England may move to raise rates at any given moment. While this view has seemingly altered over the past month, the preference for fixed rates has not abated.
Market data collated by Moneyfacts.co.uk suggests that the average fixed interest rate margin has been steadily reducing over the past 12 months. They estimate that this dropped from 4.22 per cent to 3.82 per cent during this period, with an influx of new products being offered between the 75-100 per cent LTV bandings providing confidence that lenders are choosing to actively stake a claim for a share of the sector.
As noted by Moneyfacts.co.uk editor, Sylvia Waycot, “When you consider how dire savings rates are it is hardly surprising that buy-to-let is proving popular with investors, and this is likely to increase once the rules relaxing the drawdown of pension pots in April come to fruition.”
The appeal for long term security in the residential market continues, as lenders have begun to vie for position in the 10 year fixed market. First Direct have entered the fray, with the launch of a 65 per cent LTV option at 2.89 per cent. This rate now beats the previous lowest available on the market, with Nationwide’s 2.94 per cent for LTV’s up to 60 per cent now relegated to second.
Aside from the offerings provided by these lenders, only Barclays and Santander currently offer 10 year fixed deals below the 3 per cent margin. Andrew Forbes, the head of products for First Direct, said: “Demand for fixed rates continues and we know that borrowers are looking for competitive rates that give them an element of flexibility. Our new deals allow customers to take advantage of the market’s lowest rates and protect themselves against future rate increases.”
A note of caution was provided towards long term fixed rates, as Simon Butler, a mortgage specialist for Contractor Mortgages Made Easy, stated: “These interest rates give potentially great value for borrowers, but considering the individual lender policy on porting the mortgage to another property is vital.
“These rates may be most suited to borrowers not looking to move home anytime in the future, but for those looking to upgrade property or even downgrade, the process to allow the mortgage to be transferred to another home should be investigated. At worst, the early repayment charges to exit the rate prematurely can be hugely prohibitive and costly.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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