Landlords flirt with short term mortgage deals

Proportion of landlords favouring shorter 2 year fixed rates doubles since Q1 2014, according to results from the latest Property Investment Survey published by Mortgages for Business.

  • Proportion of landlords favouring shorter 2 year fixed rates doubles since Q1 2014
  • Comes at expense of the longer-term fixed rate mortgages
  • Despite cheaper borrowing costs, nearly three quarters of landlords (73%) want BTL lenders to relax their lending criteria – up from under half (47%)

Landlords are shifting towards shorter-term fixed rate mortgage deals, where pricing remains ultra-low and predictions for increases in Bank Rate are pushed into the distance, according to the latest research from specialist mortgage broker Mortgages for Business.

As of the final quarter of 2014, the proportion of property investors favouring two year fixed rates has nearly doubled since the start of the year. This now stands at 23% from just 12% in Q1 2014.

By contrast there was a decline in the proportion of landlords who would choose longer term fixed rates. In a marked reversal, fewer would now fix their mortgage repayments for three years than would prefer a two year deal.  Just 15% prefer three year fixed rate products (down from 21%).

The proportion of property investors who would fix for five years has fallen less dramatically, from over one third (34%) in Q1 2014 to 31%.  Moreover, in the latest figures only 8% would opt for a 10 year fixed rate if available (down from one in 10).

David Whittaker, managing director at Mortgages for Business, comments:  “Tempted by cheap rates, landlords are deciding to take their chances with a shorter term deal.

“It’s true that these ultra-competitive mortgage rates will probably continue for some time – as the financial world increasingly predicts virtually zero inflation in the UK and Eurozone, plus a cooling rate of economic growth. That doesn’t mean there’s no room for caution. Even in such an exceptional situation, rates are still expected to rise in due time. However, landlords now seem willing to take the chance that won’t happen for at least a couple of years.

“However, we maintain our recommendation to fix for longer, particularly where the pricing difference between three and five year fixed rates is narrow.”

Property investors discontent with mortgage lenders

Overall, the proportion of landlords who say lenders should be doing more to support property investors has risen since the start of last year. This is now 64%, up from 58% in Q1 2014.

In particular, almost three quarters (73%) of those who felt lenders weren’t doing enough, now say lenders should ease criteria, up from less than half (47%) at the start of 2014 when investors were keener to see the cost of rates and fees come down.

As borrowing costs have fallen, substantially fewer property investors feel mortgage rates should be lower (10%, down from 19% at the start of 2014). Similarly, fewer respondents said they would like lenders to reduce fees (12% down from 20%) and only 5% felt that lenders should be lending more (down from 14%).

The survey revealed that landlords with larger portfolios continue to feel marginalised by the majority of lenders. They would like to see lenders remove age restrictions and non-property related income requirements, increase lending to limited companies and take a more common-sense approach to underwriting.

David Whittaker explains:  “Unfortunately for the more seasoned investor, the mainstream buy to let lenders tend to focus their business on landlords with smaller portfolios who don’t rely on the rent to earn a living. They do this for two main reasons; to reduce their exposure to risk and to keep costs down. And whilst there are a handful of good, specialist lenders catering to the needs of professional investors, there is capacity in this space for more providers and I would expect to see a few more join the fray in 2015.”

Landlords cool expansion plans

The survey found that the number of investors looking to expand in 2015 has decreased from the 60% recorded in Q1 2014 to stand at 55%.

Demand for the most straightforward or ‘vanilla’ buy to let property remained high with 91% of respondents saying they had at least one vanilla BTL in their portfolio (previously 92%). Of those looking to expand, the demand for vanilla buy to let purchases actually increased slightly, up from 82% to 83%.  However demand for other types of property has declined.

Just 18% of property investors are now considering purchasing a house in multiple occupation (HMO), contrasting with 29% recorded in the last survey. The proportion looking to expand their portfolio into multi-unit freehold blocks halved (9% down from 19%). Meanwhile those likely to make new investments in semi-commercial property dropped to 10% from 15% – while just 9% are now considering purely commercial property, down from 15% at the start of 2014.

David Whittaker explained: “Though a healthy majority of landlords are still planning to grow their portfolios, there has been a shift in appetite for different types of buy to let. More investors are opting for security and low risk.

“These results do show that investors are still finding it difficult to diversify their portfolios as a result of lending restrictions. So it’s clear that relaxing any unnecessarily strict criteria could help boost investment and improve the stock of homes to let.”

For more data and analysis please see our full Property Investor Survey.

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