25th July 2013
The rates for securing a buy-to-let mortgage covering more of the price of the property have fallen significantly since early in 2012.
The gap between 65% and 75% loan to value buy to let rates has narrowed in the last 18 months according to research by specialist broker Mortgages for Business.
The report entitled Buy to Let Mortgage Rates: The Real Costs (Q2 2013) suggests that in the current market the two key LTV price points are 65% and 75% loan to value. Pre-credit crunch 65pc loan to value products did not exist – at that time the established levels were 75% and 85%.
However, as lenders started to return to the market in 2011 there was a clear preference for lower LTV mortgages, which were seen as less risky for the lender (and indeed the borrower). In early 2012, 65% LTV rates were around one per cent cheaper than their 75% counterparts. Since then the gap has narrowed and today it stands at 0.46pc.
The report suggests that when arrangement, valuation and legal fees are factored in buy to let mortgage rates fell by an average of 0.25% compared to headline rates which fell by an average of 0.23%.
Mortgages for Business suggests that fees were steady in the second quarter of this year adding an average of 0.51% onto the cost of a buy to let mortgage. It also suggests that the Government’s Funding for Lending Scheme is filtering through to the buy-to-let sector.
However, five year fixed rate mortgages have risen on average by 0.20pc since the beginning of May and that this is dependent on swap rates which remain high at the long term end of the market.
David Whittaker, managing director of Mortgages for Business, said: “It is clear that although swap rates have retreated somewhat in the past few weeks, longer term swaps have remained markedly higher than they were which probably reflects a greater degree of realism about the long term future for interest rates. I suspect that over the coming months, some lenders will look to increase longer term fixed rates in order to re-establish margins lost.”
Whilst lender arrangement fees have broadly stayed the same, the report does show that fee structures have changed. In the second quarter, 53% of all buy to let mortgages had a flat lender arrangement fee, up 5%c on the previous quarter. Forty per cent of products carried a percentage-based fee of 1-3%, down 6% on Q1. This represents an interesting shift away from percentage-based fees when between 2007 and June 2012, only 20-30% of products carried a flat fee. Only 7% of products were arrangement fee free, down 2pc.