Landlords choosing five-year fixed rates following PRA changes

Q1 saw a huge swing in popularity amongst landlords for five-year fixed rate products over two-year deals, according to data from Commercial Trust Limited.

Related topics:  Finance
Rozi Jones
1st May 2018
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"This report suggests that there has been a significant reaction to the changes brought about by the PRA rules in 2017"

In 2016, ahead of the introduction of the 3% stamp duty surcharge on second properties, two-year fixed rate deals accounted for just under 68.5% of market share, with five-year deals at just over 23%.

However market share reversed during 2017, when the Prudential Regulation Authority introduced stricter lending criteria on buy-to-let mortgages.

By Q3 2017, speculation was also rife that a Bank of England base rate rise was a distinct possibility for the first time in a decade.

Consequently, Q3 saw the market share for five-year fixed deals increase to over 61% and, following the Bank’s 0.25% rise in base rate in November, Q4 saw its market share rise to just under 66%.

The trend towards five-year deals continued to gather momentum in the first quarter of 2018, when they accounted for just under 67% of market share, while two-year fixed rate products recorded just over 28%.

Andrew Turner, chief executive at Commercial Trust Limited, commented: “This report suggests that there has been a significant reaction to the changes brought about by the PRA rules in 2017, which saw much stricter rental calculations applied to shorter fixed rate deals.

“With five-year fixed rate buy-to-let products, borrowers are more easily able to maximise borrowing by taking advantage of lower, pay-rate deals and it is telling that we have seen such a change in market share over a similar period of time to the PRA changes.

“This data also illustrates that many landlords and investors are savvy enough to understand the implications of a potential rates rise on their mortgage repayments, and adjust their investment strategy accordingly.

“In the context of historic rates, there remain plenty of competitive buy to let mortgage rates available and we work with a wide variety of lenders who offer a broad range of products over different terms.

“Now, more than ever before, investors are reliant on an acute knowledge of the buy-to-let mortgage space to overcome the challenges they are presented with. But, with in excess of 50 lenders taking differing approaches to the PRA stipulations, I would argue that the capacity to do this effectively lies with the resources of a specialist."

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