Preference for shorter-term fixes is growing
Fixed rates are still the most popular option for buy-to-let remortgage borrowers, according to the latest landlord survey from specialist lender Landbay.
The survey has found that 79% of landlords expected to opt for a fixed rate when it was time for them to remortgage, with Landbay noting that the gap between a two-year or five-year preference was narrowing.
Four out of 10 landlord respondents, or 40%, said they would take a five-year fixed rate, down from 46% last December and significantly lower than the 68% recorded in August 2022.
Meanwhile, more than three out of 10 landlords, or 32%, said they would opt for a two-year fix, up from 24% in December 2022 and 13% in August last year.
According to the buy-to-let lender, the change in sentiment towards two- and five-year fixed rates partly stemmed from the fallout of the mini budget last September when rates rose sharply. Landbay said other contributory factors included the volatile economy and the cost-of-living crisis, fuelled by high inflation leading to rising interest rates.
The lender added that the preference for two-year terms by a rising number of landlords was due to the perception that mortgage rates would reduce in the next couple of years as inflation headed back towards the government’s 2% target. Two- and five-year fixed rates have been fairly close in recent months, and some landlords did not want to lock into five years if they thought rates might come down.
“It’s interesting to see that there has been a rise in the number of remortgaging landlords considering two-year fixed rates and a drop in those opting for five-year fixes,” commented Paul Brett (pictured), managing director of intermediaries at Landbay. “No one knows where rates will go, but many of our survey respondents are hoping to see a fall within two years.
“With more borrowers considering short-term fixed rates when remortgaging, Landbay has listened to the market and introduced a suite of two-year fixed rate like-for-like remortgage products. They come with the added advantage of a lower interest cover ratio stress test to help with affordability, and as long as landlords are borrowing the same as their current mortgage, the remortgage stress test will be at pay rate plus 1% instead of the standard calculation of pay rate plus 2%.”
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