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Landlords choose flexibility as 2-year fixes make a comeback

Flexibility was vital for landlords securing new buy-to-let (BTL) mortgages and remortgages at the end of 2019, according to the latest research.

The number of buy-to-let landlords choosing a two-year fixed rate jumped from just 8% in the final quarter of 2018, to a substantial 26% in the same period of last year.

Landlords were seeking shorter early repayment charge (ERC) periods, according to the Mortgages for Business (MfB) Buy-to-Let Mortgage Index, which enables them to refinance sooner without incurring a penalty. Political uncertainty was most likely the driving factor, as the UK awaited the results of the December general election.

Despite the surge in two-year fixes, the five-year fixed-rate mortgage remained the most popular choice for landlords, making up 68% of completions in the final quarter of 2019. But the market did look lively as trackers and discounted rate products saw a marginal increase in popularity, most likely due to the speculation of a reduction in the Bank of England base rate.

Managing director of Mortgages for Business, Steve Olejnik, said: “Given we now have more certainty in the political system, we forecast that landlords may start to look at longer-term fixes again in the future.”

Lenders support the market

Current reports suggest that thousands of landlords are planning to sell up ahead of the new tax year due to the increased tax burden; so the onus is on lenders to help make the sums for buy-to-let add up.

The good news is that the number of buy-to-let products available has seen a massive increase from 72 to 1,981, and those available to limited companies up from 51 to 738, giving landlords plenty of choice.

Plus, borrowers looking for longer-term fixes can still benefit from lenders’ less rigorous stress tests compared to shorter-term products, meaning they can borrow more than with a shorter-term product.

Olejnik added: “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.”

There’s no doubt that the buy-to-let sector is undergoing severe change, but as Marc von Grundherr, of letting agents Benham and Reeves, says: “There’s always going to be very strong demand for rental property. Rental yields are still going up and so while there have been changes, those who stay in buy-to-let or are brave enough to enter it can do well.”

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