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An increasing number of investors are taking on five-year fixed rate mortgages as opposed to short-term alternatives in order to avoid strict affordability tests.
The cost of longer term products is continuing to fall, according to new analysis from the Buy to Let Club. The proportion of the Club’s landlord customers who are seeking five-year fixed rates has reached 42 per cent. This is up from a mere 15 per cent two years ago before the introduction of increasingly stringent Prudential Regulation Authority (PRA) stress-testing requirements. Taking on a longer term product offers greater security to landlords as well as the clear benefit of avoiding stringent affordability tests and accessing newly competitive rates.
Buy to let investors are also taking advantage of the record low rates for five-year products. Between 2008-2013, the average five-year fixed buy to let rate at 75 per cent loan to value switched between 5 per cent and 7 per cent. However, today many lenders are offering rates at less than 2.7 per cent.
Managing director of Buy to Let Club, Ying Tan, said: ‘We’ve seen a steady increase in the number of clients opting for five-year fixed rates over the last few years. With extremely competitive rates and the added security that they present, it is not surprising that they are a popular option for investors. Of course they also have the added benefit of less stringent affordability tests that make them appealing for raising finance against low-yielding properties.
He continued: ‘We have a number of fantastic five-year rates at present including a brand new exclusive with Santander at 2.54 per cent with a £1,999 fee up to 75 per cent LTV that is available for both purchases and remortgages. Principality’s 2.55 per cent rate and Virgin Money’s 2.64 per cent rates at the same LTV are also proving popular.’