Buy to let

Five-year buy-to-let mortgage rates available today are among the cheapest ever seen, so why aren’t more landlords locking in for longer?

In fact when fees and monthly payments are taken into account, one mortgage broker argues five-year fixed rates have never been cheaper.

We asked Jeni Browne, of the specialist buy-to-let mortgage broker Mortgages for Business, to give landlords the lowdown on what fixing for five years could mean for them.

Why I think it’s time for landlords to fix for five years

 As a company, we have been promoting five-year fixed rates for some time now.

This bucks the trend somewhat, as many brokers want you to take something shorter term, perhaps two to three years, as they will get to do your remortgage sooner.

But there are lots of good five-year fixed rates around at the moment. Very good, in fact. So why don’t more people take them?

Rates may go down

Well, yes, in times gone by, when Bank rate was sitting at 5 per cent and the fixed rates were just over this, one would be right in thinking that there was scope for rates to go down.

But today, with Bank rate sitting at 0.5 per cent and with further increases likely next year, this argument doesn’t really wash.

You plan to sell the property within the next five years

Now this is a very fair point – it would be pretty unusual to lock into a five-year deal knowing that you might have to pay it off in two to three years’ time and get clobbered with early repayment charges.

However, if you’re planning to buy another property at the same time as selling, then taking a portable mortgage could be the answer.

Two- and three-year fixed rates are cheaper

Again yes, this is true. But the gap is likely to be smaller than you may think.

On personal borrowing, two-year fixed rate buy-to-let mortgages start at 1.34 per cent and five-year rates at 2.17 per cent (borrowing via a limited company is a little bit higher).

Add in the cost of remortgaging after two years, and the higher rate you will be going onto after this time, because let’s face it, rates will be higher then, and actually, the cost difference becomes much smaller because of the fee.

Plus, you can’t put a price on a good night’s sleep and taking a five-year fixed rate now will certainly provide you with some security particularly as we watch Brexit and wider world issues unfold.

Why would you?

Notwithstanding the points above, why do people take five-year fixed rates on their buy-to-let property?

The key point is certainty. Many people are worried about rate increases.

They have a set amount of rental income coming it, and an increase in their mortgage payments will erode their profit margin – you can’t simply increase a tenant’s rent because interest rates have moved upwards.

Additionally, in the world of buy-to-let, on many five-year fixed rates, you can borrow more against the rental income than you can on a two-year or three-year deal as lenders are allowed to be a little more generous with their stress tests on longer term fixed rates.