Buy to Let lending appetite increases for high LTV deals
The gap between 65pc and 75pc loan to value buy to let rates has narrowed in the last 18 months according to research by specialist broker Mortgages for Business. 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 65pc and 75pc. Interestingly pre-Credit Crunch 65pc LTV products did not exist – at that time the levels were 75pc and 85pc. 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, 65pc LTV rates were around 1pc cheaper than their 75pc counterparts. Since then the gap has narrowed and today stands at 0.46pc.
The report also shows that when factoring in fees (arrangement, valuation and legal), buy to let mortgage rates fell by an average of 0.25pc compared to headline rates which fell by an average of 0.23pc. This indicates that fee amounts remained fairly steady in Q2 adding an average of 0.51pc 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 0.20pc 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 (53pc) of all buy to let mortgages had a flat lender arrangement fee, up 5pc on the previous quarter. 40pc of products carried a percentage-based fee of 1-3pc, down 6pc on Q1. This represents an interesting shift away from percentage-based fees when between 2007 and June 2012, only 20-30pc of products carried a flat fee. Only 7pc of products were arrangement fee free, down 2pc.