Are more landlords looking for a short-term solution to ride out the economic and political chaos created by Brexit?
That is the question posed after specialist buy to let broker Commercial Trust Limited revealed a growing number of two-year fixed rate buy to let applications, in the first half of 2019.
Andrew Turner, chief executive, announced:
“Five year fixed rate buy to let deals have proved dominant over several quarters, notably since the introduction of the PRA rules, which tightened lending criteria for shorter-term products in 2017.
“Five-year applications remain predominate, but there has been a definite shift to two-year applications during the first half of 2019.
“At the end of 2018, 68% of our buy to let applications were for five-year fixed rate terms. The two-year fixed rate proportion was 26%.
“However, by the end of Q2 of 2019, five year fixed-rates account for 59% and two-year fixed rate deals are at 39%.
“There could be a number of factors at play here, with the obvious explanation being that the first half of 2019 has seen political and economic uncertainty, largely as a result of Brexit negotiations.
“The Bank of England has at different times hinted at rates rises, should the economy grow in line with their forecasts, but then suggested that a no-deal Brexit could see the base rate cut.
“Many landlords are perhaps looking to hedge their bets for the short-term, with a competitive, low rate buy to let mortgage, which will hopefully last beyond all of the uncertainty, without locking them into a long-term agreement.
“At the same time, many experienced landlords have had two years to digest the implications of the PRA changes and have perhaps already made a move to a five-year deal.
“Of course locking in for two years gives a landlord the opportunity to reassess the market much sooner and to consider re-mortgaging in two years’ time, without necessarily incurring additional early repayment charges.
“It will be interesting to see whether this trend towards shorter term deals continues, particularly given data that suggests the gap between two-year and five-year fixed rates has reduced.”
Regional gains
Geographically, three regions in the UK have seen consistent growth in their overall proportion of buy to let purchase application business, with the South West leading the way.
Turner said: “After five consecutive quarters where year on year, the South West’s proportion of applications fell, this region made considerable ground up in Q2 of 2019 with a 3.5% increase.
“Other areas to see gains in overall proportion so far in 2019, compared to the whole of 2018, are the East of England and the East Midlands, while there has been a fall in the overall percentage of applications from London and the South East.
“In London, there has been a 3.7% fall in the overall proportion of buy to let applications, from Q1 to Q2 of 2019.
“The capital was on a par with the North West, contributing 12.4% of buy to let application business during the most recent quarter.
“During Q2 of 2019, the East of England proved the leading region, responsible for 12.9% of applications.
“The South East saw a notable fall in its proportion of buy to let applications from Q1 (14%) to Q2 (7%).
“Affordability may still be an issue in London and the South East and regional house price variation and the effects of Stamp Duty, may be encouraging buy to let investors to investigate potentially cheaper properties and better yields elsewhere.”
