Specialist buy-to-let broker Commercial Trust has found a growing number of two-year fixed rate buy-to-let applications in the first half of 2019.
It found that, while five-year applications remain predominant (notably since the introduction of the Prudential Regulation Authority rules), there has been a definite shift to two-year applications during Q1 2019.
At the end of 2018, 68% of Commercial Trust’s buy-to-let applications were for five-year fixed rate terms, while the two-year fixed rate proportion was 26%. However, at the end of Q2 2019, five-year fixed rates now account for 59% and two-year fixed 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,” Andrew Turner, chief executive of Commercial Trust, said.
“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.”
He added: “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.”
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.
After five consecutive quarters where year-on-year, the South West’s proportion of applications fell, this region increased by 3.5% in Q2 2019.
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,” Turner explained. “The capital was on a par with the North West, contributing 12.4% of buy-to-let application business during the most recent quarter.”
The East of England proved the leading region during Q2 2019 – responsible for 12.9% of applications. Elsewhere, 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,” Turner concluded.