Barclay’s have launched a new ‘highly unusual’ 10 year buy to let mortgage product fixed at 2.99 per cent, shaking up the landlord lending sector.
Although accompanied by a £2,000 fee, strict rental income requirements will not apply to the product as the term is fixed for 10 years. This thus means landlords could borrow more than they otherwise could on a short-term fixed rate.
However, a warning has been issued by brokers to landlords considering the deal as high exit charges can apply if investors need to sell before 10 years have passed. The Barclays deal issues a 5 per cent early repayment charge if the full 10 years are not completed, which can constitute a considerable bill. However, for those convinced that they can make the long term commitment, the deal could be desirable, as the tough affordability requirements usually required by Barclays have been shelved.
For mortgage products with a term up to five years, landlords are required to demonstrate that their rental income will be able to cover their mortgage payment by a ratio of 145 per cent should their mortgage rate go up to 5.5 per cent. However, for products that exceed five years, this ruling is scrapped in terms of a more lenient affordability calculator.
Director of mortgage broker Anderson Harris, Jonathan Harris, says: ‘A 10-year fix for buy-to-let is unheard of and the result of changing circumstances for the sector. What is exciting about this product is that the affordability calculator takes into account the applicant’s overall income and expenditure position – so massively benefits those applicants with strong incomes and limited commitments. The upshot is that they can borrow more than previously – a welcome innovation to recent restrictive practices in the buy-to-let market.’
However, his advice was not without warning: ‘Landlords need to be sure and understand the consequences of the associated charges if they have to refinance or repay the loan within the fixed-rate term. Fixing for longer terms limits the flexibility of the borrower and who knows what changes will occur in the landlord’s situation or in the buy-to-let market during this period.’