The Q4 2016 results of Mortgages for Business’ Buy to Let Mortgage Costs Index reveals that while swap rates rose strongly in the last quarter of 2016, buy to let mortgage headline rates were largely unaffected, due mostly to Bank Rate remaining at its record low of 0.25%.
Towards the end of December there was a noticeable yet temporary drop of c.0.3% in the average rate of high loan to value (80%+ LTV) fixed rate buy to let mortgage products, although this coincided with a sharp drop in product availability as a number of products were withdrawn in preparation for fresh offerings in the New Year. Overall, however, both fixed and tracker rates showed little movement, having crept up only slightly from those in Q3.
The index also found that rates (including lender-associated fees) for low LTV trackers (up to 65% LTV) remained comparatively expensive, averaging 5.17% in the quarter. In fact, as an average over Q4, they were more expensive than their medium LTV (70%-75% LTV) counterparts which averaged 4.84%. High LTV trackers averaged 5.35% in Q4.
Commenting on the results, David Whittaker, CEO of Mortgages for Business said:
“With demand in the buy to let sector already under pressure from both fiscal and regulatory changes it is good to see that lenders have not further burdened landlords by increasing interest rates. However, with rising swap rates this situation cannot continue forever, and we would expect to see increases at some point in 2017 as lenders factor in the additional time spent on deeper background checks and assessing affordability, particularly from landlords borrowing in a limited company capacity. Whether increases happen before 1st October when lenders will be obliged to be extra vigilant while assessing applications from portfolio landlords remains to be seen, but we will be watching the market closely in this respect.”
Overall, the effect of charges (lender-associated fees) on buy to let rates changed very little from quarter to quarter, again, adding an average of 0.62% to the headline rate, although the figures show that lenders did reduce their charges slightly on high LTV products.
There was a shift towards products with percentage-based fees which accounted for 41% of buy to let mortgages in Q4, up 2% points on Q3. Fee-free products also gained market share accounting for 16%, up from 14% in the previous quarter. Products with flat fees lost ground for the third successive quarter, but perhaps of more interest is the fact their average price is now averaging just £1,397 compared to £1,556 at the beginning of 2016.
The index can be found here.
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