‘Landlords and investors changing approach to borrowing’

Landlords and property investors are changing their approach on how to finance borrowing, according to Mortgages for Business.

A recent survey carried out by the firm found that 26% would currently prefer a variable rate deal for a new buy-to-let mortgage, up from 23% recorded in November 2014.

However, choosing to fix repayments for just a short time period is actually slightly less popular than six months ago, according to the findings. 

Currently 22% said they would prefer a two year fixed rate mortgage, down marginally from 23% in November, while 12% would go for a three year fix, down from 15% in November. 

Approaching a third of landlords (30%) would still choose the safety of fixing their mortgage repayments for five years, though this is also slightly down on 31% in November.

By contrast, very long term fixes appear to be gaining popularity. One-in-ten landlords (10%) would now choose a 10-year fix, more than the 8% recorded in November.

Landlords’ average loan-to-value ratios have fallen in the space of the last six months. Overall, the average overall LTV ratio for UK landlords now stands at 54%, down from 57% in November.

The proportion of landlords with overall borrowing above 75% LTV has fallen to just 12%, down from 16% in November. The vast majority have some borrowing, though below 75% LTV. This now represents more than four in five landlords (81%), up from 79% in the previous survey. Currently only 6% of UK landlords have no borrowing whatsoever.

 “Over the medium term, interest rate expectations have never been friendlier to landlords. This is clearly reflected in the proportion willing to eschew guaranteed stability in favour of some immediate savings.  Over a two year period this may be rational, and landlords as a whole don’t tend to take extraordinary risks with their financial position,” says David Whittaker, managing director of Mortgages for Business.  

“However, over the longer-term, the stability of a fixed rate is likely to pay off, and given how five year fixes are barely more expensive than some variable rates we maintain our existing advice to fix now if it fits with a landlords’ investment plans over the next five to ten years,” he added.