Gary McKenna, consultant mortgage broker, highlights why it is now more important than ever to consider a five year fixed rate.
Blog updated on: 31/08/2016
Pricing has never been more competitive
When I bought my first home ten years ago, I was offered a two year fixed rate at 5.80% - quite competitive at the time, so I was pretty happy with it.
Bearing in mind that was a decade ago and in general the buy to let market has higher interest rates than the residential market I find it hard to argue with the current five year fixed rates on offer.
As I write there is a five year fixed rate buy to let mortgage on the market at 2.79% (4.2% APR).
Admittedly, this is a 60% LTV product but even at the higher LTV of 80% you can achieve five year rates from 3.93% (4.2% APR).
For more information on either of these rates do give me a call, or get a quote for your borrowing requirements using the links below.
Protect yourself in this time of uncertainty
So, Bank Rate has been cut from 0.5% to an historic low of 0.25%, unfortunately this does not mean all mortgage pricing is going to come down.
One factor to consider is that the UK has been downgraded to a “negative” credit rating which in turn may make it more expensive for lenders to borrow money.
Lenders will therefore need to increase rates to maintain the margins they require.
I have also noticed a shift in lenders coming away from competing on pricing and focusing on criteria instead. As previously mentioned five year money is very low and lenders know they can’t bring rates down much further.
It is almost naïve to think that a reduction in Bank Rate automatically means a reduction in mortgage pricing, as there are many elements that play a significant role.
No one knows exactly what the future holds but locking into a five year fixed rate now will provide you with some certainty for the mid-term.
I’m sure by now you have heard about the stress test changes lenders are starting to implement.
The Mortgage Works was one of the first buy to let lenders to move stress tests from the conventional 125% at 5% to 145% at 5% - this makes a big difference to how much you can borrow personally.
The advantage of taking out a five year deal is lenders (in general) can be more flexible with the stress test as they have greater certainty and security on five year money.
For more information do give me a call on 01732 471652 or email firstname.lastname@example.org
*Fixed at 2.79% for 5 years (to 31/10/2021) reverting to Lender’s Standard Variable Rate (currently 4.49%). For purchases only. Early Repayment Charge: 5% of the amount being repaid until 31/10/2017, then 3% until 31/10/2019, then 1% until 31/10/2021 from drawdown. Overall Cost for Comparison: 4.2% APR. Loan to Value: 65% loan to value up to £500,000 loan amount. Lender Arrangement Fee: £1,999 added to loan. Broker Fee: A broker fee of £497 will apply (other fee options available). Repayment Options: Interest only or repayment. Rent to Interest Cover: The rental income must exceed 140% of the cost calculated at 5.0%. Minimum Income Required: £25,000 per annum.
**Fixed at 3.93% for 5 years reverting to Lender’s Standard Variable Rate – 1.00% (currently 3.98%). For purchases and remortgages. Early Repayment Charge: 5% of the amount being repaid for the first year, then 4.5% until the end of year 2, then 4% until the end of year 3, then 3.5% until the end of year 5 from drawdown (overpayments of up to £5,000 can be made in any 12 month period without incurring an early repayment charge). Overall Cost for Comparison: 4.2% APR. Loan to Value: 80% loan to value up to £400,000 loan amount. 75% loan to value up to £600,000 loan amount. 70% loan to value up to £1,000,000 loan amount. Lender Arrangement Fee: 1.5% added to loan. Broker Fee: A broker fee of £497 will apply (other fee options available). Repayment Options: Interest only or repayment. Rent to Interest Cover: The rental income must exceed 125% of the cost calculated at a rate of 3.98%. Minimum Income Required: No requirement.
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