The number of arrangement fee free buy to let mortgage products rose in Q3 as lenders tried to find ways to compete without reducing rates which are already at an all-time low.
The findings from the latest Buy to Let Mortgage Costs Index reveal that 17% of products in Q3 were offered without lender arrangement fees, up from 13% in the previous quarter. Flat fees fell slightly to 46% from 47% in Q2. Products with percentage-based fees were the biggest losers, dropping back to 37% of all BTL products compared to 40% in the previous quarter.
Charges (lender arrangement fees, valuation fees and legal costs) have continued to have a declining impact on total costs. On average they now add an additional 0.48% to the headline rate, down from 0.52% in the previous quarter, and down from 0.67% in Q1 2013 when the index was first launched. This downward trend can now be seen even in high loan to value products which had previously seen rises up to 0.90% of the headline rate in 2014. In Q3 2015 the average impact of costs on these high LTV rates was down to 0.67% after three successive falling quarters.
The index also revealed that although absolute products numbers by initial term (1-5 year rates and loan term products) have risen across all categories, the market share of two year products has declined year on year from 54% in Q3 2014 to 43% today. Longer term products, particularly three and five year rates have increased their market share, gaining between them 9% of the market.
Simon Whittaker, finance director at Mortgages for Business said: “The recent falls in swap rates, almost back to levels similar to the start of the year, have helped lenders trim prices but whilst they continue to be attracted to the BTL space, they are having to be ever more creative to find the balance between maintaining their margins and offering competitive products. When looking at the market and the wider economy, the balance seems to have tilted towards there being no increase in Bank Rate for quite a few months yet.”