Fixing your buy to let mortgage for 10 years is a big commitment, so you have to be pretty sure it's the right step for you. Gavin Richardson considers the advantages and disadvantages for landlords.
The Mortgage Works has done it again and should be congratulated in leading the way with the launch of the only 10 year fixed rate in the buy to let mortgage market.
Many of you will recall that TMW were the first to go to 80% LTV post-crunch and as one of the dominant lenders in the vanilla buy to let space, has continued to support both first time landlords and professional investors. The launch of the 10 year fixed rate fills a gap in the long term fixed rate market and it was no surprise that at some stage, lenders would follow the launch of Skipton’s seven year fixed product late last year. It should not be a surprise that it is TMW who have been the first to step up.
Available up to 75% LTV the rate is fixed at 4.99% (5.04% APR) for 10 yrs and is available for purchases, remortgages and those looking to let to buy. The arrangement fee is a flat £995 added to the loan and the rent to interest calculation is 125% at 4.99%.
As regular readers will know, we have been strong supporters of the longer term fixed rate and having a 10 year product is certainly a welcome addition to the suite of options available. It will, however, be interesting to see what appetite there actually is among landlords to fix for longer than five years.
For many, five years is long enough and often suits life cycles and allows the landlord to review the finance options and potentially refinance and/or release capital before fixing again. In my opinion, fixing for as long as 10 years will not be everyone's cup of tea and I suspect that TMW won't be inundated with applications. Skipton's seven year fixed rates were withdrawn last November after only a few months of launch. To date there has been no word on whether these products will be replaced like for like.
In my opinion there is though, a market for longer term buy to let mortgages; in our last two Property Investor Surveys 8-10% of landlords said they would consider fixing for 10 years and I can particularly see older investors looking for certainty for the last 10 years of their mortgage term.
However, ten years can be a long time, so those who do take the rate will have to bear in mind the penalty charges should they wish to redeem the mortgage before the 10 years is up - 7% of the amount being repaid for the first four years, then decreasing by 1% increments yearly until the end of the initial term. Not small amounts, although 10% over-payments are allowed each year without penalty and I would expect many to take advantage of this concession.
Many landlords are sitting on very low, Bank Rate linked mortgages with the likes of Mortgage Express, Capital Home Loans and many other pre-crunch lenders. It will probably take the first Bank Rate rise for borrowers to actually consider coming away from current low rates but there are some to whom a 10 year fixed rate will be attractive - in particular those with 10 years left on their mortgage term and accidental landlords looking to lock away investments for the long term.
If you are interested in finding out more about fixing for 10 years and/or reviewing your buy to let funding options do get in touch with us on 0845 345 6788. We provide a free review of your property portfolio finances and are always up for the challenge of finding a way to save you money.
14th January 2015