This represents good news for residential property investors because it demonstrates that lenders’ appetite for higher LTV deals has increased.
The report entitled Buy to Let Mortgage Rates: The Real Costs (Q2 2013) suggests that in the current market the two key LTV price points are 65% and 75%. Interestingly pre-Credit Crunch 65% LTV products did not exist – at that time the levels were 75% and 85%. However, as lenders started to return to the market in 2011 there was a clear preference for lower LTV mortgages such that in early 2012, 65% LTV rates were around 1% cheaper than their 75% counterparts. Since then the gap has narrowed and today stands at 0.46%.
The report also shows that when factoring in fees (arrangement, valuation and legal), buy to let mortgage rates fell by an average of 0.25% compared to headline rates which fell by an average of 0.23%. This indicates that fee amounts remained fairly steady in Q2 adding an average of 0.51% onto the cost of a buy to let mortgage. It also suggests that the government’s Funding for Lending Scheme is filtering through.
It’s a different story for five year fixed rates however, which have risen on average by 0.20% since the beginning of May.
Commenting on the rise, David Whittaker, managing director of Mortgages for Business, said:
“It is clear that although swap rates have retreated somewhat in the past few weeks, longer term swaps have remained markedly higher than they were which probably reflects a greater degree of realism about the long term future for interest rates. I suspect that over the coming months, some lenders will look to increase longer term fixed rates in order to re-establish margins lost.”
Whilst lender arrangement fees have broadly stagnated the report does show that fee structures have changed. In Q2 over half (53%) of all buy to let mortgages had a flat lender arrangement fee, up 5% on the previous quarter. 40% of products carried a percentage-based fee of 1-3%, down 6% on Q1. This represents an interesting shift away from percentage-based fees when between 2007 and June 2012, only 20-30% of products carried a flat fee. Only 7% of products were arrangement fee free, down 2%.
