By Two-year fixed-rate mortgages grew increasingly popular for buy-to-let landlords in 2019, according to new findings by Mortgages for Business.
In 2018, a mere 8 per cent of buy-to-let landlords considered choosing such shorter-term products, compared to 26 per cent in 2019. This demand for shorter-term fixed-rate mortgages was fuelled largely by a reduction in Early Repayment Charge (ERC) periods.
ERCs on products such as two-year fixed-rate mortgages have fallen greatly over time. This has made them increasingly attractive to landlords as a way to refinance much more quickly without incurring any penalties.
A sign of the times
The rising interest in short-term fixed rates can also be explained by the increased uncertainty investors faced in 2019. However, despite increased demand for two-year fixed-rate mortgages, marginally fewer landlords opted for fixed rates over variable products.
The proportion of landlords using fixed rates fell slightly from 97 per cent in the third quarter of 2019 to 95 per cent in the fourth. Even so, there were notably more fixed-term mortgage products on the market by the end of 2019 compared to the summer.
Mortgages for Business estimated there were as many as 1,981 of these fixed-term mortgage products available by late 2019, up from 1,909 in the third quarter of that year. In October 2019, Property Notify’s David Smith reported that long-duration mortgage products were helping constrain housing turnover.
Greater certainty may boost longer-term fixes
One consequence of the easing of uncertainty in the UK since late 2019 is that prospects for the longer term have started to improve. Steve Olejnik, managing director of Mortgages for Business, explained that, “Given we have more certainty in the political system, we forecast that landlords may start to look at longer-term fixes again in the future.”
Mr Olejnik also explored the growing number of ways landlords have been borrowing, claiming that “More landlords are expanding their portfolios through a limited company, which has proven to be a more effective borrowing vehicle, both from a tax perspective and financially.
“Lenders have responded to that and demand has fuelled an increase in the number of products available.”
The new findings from Mortgages for Business come after research from insurance provider LV= revealed that an increasing number of people aged over 65 were using equity release to unlock money tied up in their own homes.
LV= found that pensioners were increasingly using this form of financing to provide cashflow to pay down existing debts, including mortgages, as well as to help family members and friends financially.
This trend is emerging as the UK population continues to age and the growing number of pensioners seek more innovative ways to raise finance using the equity of their own homes.
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