Which mortgage: Consumer buy-to-let or buy-to-let for accidental landlords

Mortgages are back on the shelf, but what’s the best product?

Most lenders who had pulled products in the aftermath of the mini-budget have now reinstated them at revised rates, and borrowers now need to choose the best mortgages for their needs.

After a bumpy couple of weeks in the mortgage market since 23 September, some stability has resumed with the majority of lenders bringing back products and widening their doors to borrowers.

While there is still plenty of unease regarding where the market is headed in terms of interest and mortgage rates, and what the next moves of the chancellor and prime minister might be, the overriding message in the housing market is to take action where possible and continue to look at the long-term picture.

Mortgages are undoubtedly on the up compared to the historic lows we have become used to in recent years. As ever, there are hundreds of products on the market catering for various buyer types, deposit levels and term lengths.

Mortgages reflecting the market

The government’s U-turn on the 45% tax bracket eradication has certainly calmed traders, and this has had a knock-on effect across much of the financial world. However, lenders’ reactions are typically slower and more cautious, and mortgages and rates are constantly under review.

Mark Harris, chief executive of mortgage broker SPF Private Clients, provides a further explanation of how mortgages are often subject to a knock-on effect due to external events.

“A number of factors influence product pricing, with two key components being the cost of funds and appetite. Cost of funds has undeniably risen however, due to levels of volume being experienced by lenders, they would hope to slow volume by raising rates.

“Sadly, this often leads to a domino effect, with other lenders also taking the same approach so as not to expose themselves to service disruption.”

How long should your fixed rate be?

For borrowers trying to predict what might happen next, of course, there’s no telling where mortgages will end up in two, five or even 10 years’ time – and this is not a new phenomenon. Borrowers have always had to make a judgment call on their mortgage length based on current circumstances and outlook.

Of course, for the greatest level of certainty, 10-year mortgages can be an excellent option. Property investors or homebuyers who are relatively sure that they will still own the property in a decade, and will probably not have undergone any other significant financial changes, might particularly find this a good choice.

The latest Moneyfacts data shows that the average 10-year deal rate is 5.41%, which is less than the current average two-year and five-year fixed rate. But you shouldn’t enter such a long-term deal lightly, says David Hollingworth, associate director at mortgage broker L&C.

“It’s still important to consider the length of lock-in that will fit with the borrower’s plans. Ten year fixed rates could be a good way to remove any anxiety about the ups and downs of interest rates for someone looking to see out the remainder of their mortgage.

“However, being locked in for the long term could limit flexibility for someone who anticipates that they will need to move in coming years. The rate can be taken to a new property but there’s no guarantee that the lender will be able to meet any additional borrowing requirement or at what rate.”

Short-term options are pricier

It is much more common to opt for two-year or five-year fixed rate mortgages. But while two-year products offer more flexibility, they are currently the most expensive option, with Moneyfacts’ data showing the average rate is now 5.75%. This is up from 2.38% two years ago.

By contrast, the average five-year fixed rate is now 5.48%. However, with speculation that the Bank of England will take measures to reduce inflation and even interest rates, there is a chance rates could come down again before the end of five years, so this is what borrowers must weigh up.

Hollingworth concludes: “The decision for borrowers will be how best to deal with the uncertainty and many will want the peace of mind that a fixed rate could bring them and allow them to budget, even though that will carry a higher cost.”

BuyAssociation has a range of property investment opportunities available across the UK, suitable for both cash buyers and mortgage holders. Get in touch to find out more. 

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