Investors and buy-to-let landlords will be keen to secure the best mortgage deals as rates continue to fall, but what’s the best product length to go for?
More and more lenders have been jumping on the bandwagon cutting rates and offering increasingly enticing mortgage deals to borrowers, and this began even before the Bank of England announced that it would hold interest rates at 5.25% last month.
This has been welcome news to the many thousands of borrowers whose current products are coming to an end, as well as those who plan on taking out new borrowing on their next investment. However, with the future of interest rates still relatively uncertain, choosing the best deal can still be a challenge.
Because property investment tends to be a long-term venture, locking into a longer mortgage deal – such as a five-year or even a 10-year fixed rate – has historically been a popular option. It gives the borrower a greater level of certainty in terms of their outgoings, which can help with financial planning.
However, in the current climate, many borrowers have been looking into more short-term mortgage deals, securing a fixed product for just two years in the hope that more competitive rates are on the horizon.
Is it worth getting a shorter fixed term?
According to new research from Twenty7tec, almost half of all fixed rate mortgage searches on its search engine were for the shortest terms of two years or less. Two-year fixed rate mortgage deals made up 47.7% of all fixed rate mortgage product searches in September.
Meanwhile, those hunting for five-year fixed rates accounted for 32.4% of all searches, and five- to 10-year fixed rate terms only made up 20.2% of the total. As director Nathan Reilly pointed out, this is likely to be due to buyers trying to “shorten the effects of current rates”.
This could indicate an expectation that peak interest rates are now behind us, and that those remortgaging two years from now are likely to see better mortgage deals. Some are even choosing to go onto tracker or variable rate mortgages as they adopt a ‘wait and see’ approach to future rate changes.
At the same time, there are still benefits to locking into a five-year fixed rate. It means that your monthly payments will stay the same for five years, which can be a comfort from an investment perspective, particularly if rates don’t change drastically over the period.
Of course, no one can predict the future, and it is important to seek independent advice if you need help deciding which product to settle for.
Buy-to-let mortgage deals are improving
The latest figures from Moneyfactscompare reveal that, at the moment, the most competitive buy-to-let mortgage rate with 75% loan-to-value is 4.44% on a two-year fixed rate. This rises to 4.69% on 70% LTV with a five-year fixed product, and 5.38% on a 10-year fixed product with 60% LTV.
Interestingly, though, in the wider residential mortgage market, the most competitive mortgage deals are generally on the longer-term products, with two-year and three-year rates being the most expensive at the moment.
Still, across the board and within the buy-to-let space, lenders are continuing to compete by bringing their rates down, broadening their product ranges and even offering a greater number of incentives to borrowers. For landlords, this is certainly a step in the right direction compared with a few months ago.
Among the most competitive lenders, as highlighted by Cat Armstrong, mortgage club director at Dynamo for Intermediaries, are West One, Precise Mortgages, Keystone Property Finance, Fleet Mortgages, Foundation Home Loans, Landbay, The Mortgage Lender, Kensington, Aldermore and Molo.
These are all specialist lenders in the buy-to-let space, and some of them – such as West One – are now offering sub-5% mortgage deals to customers.
As brokers continue to speculate and predict that this pattern of rate slashing among lenders will continue, it is a good time for property investors and landlords to keep a keen eye on the mortgage market and take advantage of the latest opportunities.
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