swaps

Buy to let ‘unaffected by rising swap rates’

Buy-to-let mortgage rates have been largely unaffected by the strong rise in swap rates seen in the last quarter of 2016, according to Mortgages for Business. The broker said this is due mostly to the low bank rate of 0.25%. 

The buy-to-let mortgage costs index showed a noticeable yet temporary drop of around 0.3% in the average rate of fixed-rate buy-to-let mortgage products with a loan-to-value (LTV) of higher than 80% towards the end of December.

However, this coincided with a sharp drop in product availability as a number of products were withdrawn in preparation for fresh offerings in the New Year. Overall, both fixed and tracker rates showed little movement, having crept up only slightly from those in Q3.

Meanwhile, average rates for low LTV trackers (up to 65% LTV), were more expensive than their medium LTV (70%-75% LTV) counterparts. Including lender-associated fees, the low LTV products averaged 5.17% compared with 4.84% for medium-term LTVs. High LTV trackers averaged 5.35%.

Medium LTV products did not experience the rate spike that low LTVs did at the end of August and have remained cheaper ever since. Mortgages for Business said this inversion has been caused by a number of low LTV, higher interest rate products for borrowers outside mainstream lending – such as those with adverse credit or who live abroad.

David Whittaker, chief executive of Mortgages for Business, said rates are likely to rise in 2017. From October, lenders are also faced with new requirements when assessing portfolio landlords’ applications.

“With demand in the buy to let sector already under pressure from both fiscal and regulatory changes it is good to see that lenders have not further burdened landlords by increasing interest rates,” he said.

“However, with rising swap rates this situation cannot continue forever, and we would expect to see increases at some point in 2017 as lenders factor in the additional time spent on deeper background checks and assessing affordability, particularly from landlords borrowing in a limited company capacity.”

Overall, the index found that the effect of charges on buy-to-let rates changed very little from quarter-to-quarter, adding an average of 0.62% to the headline rate, although lenders did reduce their charges slightly on high LTV products.

There was a shift towards products with percentage-based fees which accounted for 41% of buy-to-let mortgages in Q4, up 2% points on Q3. Fee-free products also gained market share accounting for 16%, up from 14% in the previous quarter. Products with flat fees lost ground for the third successive quarter, and their average price is now £1,397 – compared to £1,556 at the beginning of 2016.

 


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