Shorter-term money may seem the best option for customers and the shorter tie-in periods create more business for intermediaries but there are a number of good reasons to recommend five-year deals.
You might think that it is counter-intuitive for a broker to proactively recommend five year fixed rate buy-to-let products.
Shorter term money, especially discounted and tracker rates, are usually cheaper making them appear the most suitable option to recommend to customers.
Also, it is not unusual for intermediaries to purposefully recommend two and three year rates so that they can create more repeat business as borrowers come out of tie-in periods.
But we regularly recommend five year fixed rate products to our customers regardless of whether they own just one residential investment property or a large portfolio. Why? Well for a number of reasons:
- Some investors are more risk averse than others. Many believe that there is a good deal of merit in knowing exactly what their mortgage payments will be for 60 consecutive months. It’s good for budgeting and planning.
- Many professional investors prefer not to keep all their eggs in one basket. Not only do they like to own a variety of investment properties with varying yields, they also like to financially lock away part of their portfolio.
- Investors often find it easier to swallow larger lender arrangement fees of 2-3 per cent when spread over a longer fixed rate period.
- Some investors like to refinance each time a tie-in period ends. Two and three year rates can lead to investors spending more on fees than simply going for a five year rate.
- Currently some five year rates are only about 0.25 per cent more than three year money which is not bad in today’s market, take the Keystone buy-to-let Mortgages range as an example.
- Whilst many market commentators speculate that interest rates will remain low for some considerable time, who really knows how volatile the Libor will be in the coming months and years.
- And what about the on-going crisis in the Eurozone? Many investors feel that fixing for five years offers a measure of protection against the knock-on effects of potential European financial and economic meltdown.
At the time of writing this article, our bespoke sourcing tool Mortgage Flow, showed around 70 five year fixed rate buy-to-let mortgage products. Here are few that are worth second look.
At 80 per cent LTV Aldermore Mortgages has a new rate of 5.18 per cent with a flat fee of £999. This rate is down 0.7 per cent on its previous offering and works well for individual applicants looking to purchase vanilla properties with loans up to £400,000.
For more complex non-standard transactions at 75 per cent LTV Keystone buy-to-let Mortgages has a range of five year fixes starting at 5.48 per cent for individual applicants and 5.98 per cent for limited companies with fees ranging from 2.25-3.25 per cent.
For those with larger deposits, Godiva Mortgages is offering 4.69 per cent at 65 per cent LTV for loans up to £500,000 with no arrangement fee and a free valuation.
This rate is for vanilla transactions and the lender insists that applicants have a minimum income of £25,000 in addition to rent.
Similarly, at 60 per cent LTV Abbey for Intermediaries is offering 4.49 per cent for loans up to £500,000 on vanilla applications with a flat fee of £1,495. Like Godiva, Abbey imposes a minimum income of £25,000 on applicants.
That’s not to say we don’t recommend short term funding solutions to our customers. Of course we do but we are always careful to offer a genuine spread.
Article courtesy of Mortgage Strategy
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