Boom in mortgages for second homes
In this week’s mortgage round-up we look at why now could be the time to buy that second home you’ve always wanted, the explosion in mortgage choice for landlords and whether you should fix your mortgage for five years.
June 12, 2019
Landlords could cut their mortgage bills as buy-to-let mortgage choices hit a 12-year high. Over the past year the number of buy-to-let (BTL) mortgages available has risen by 21% with 2,396 home loans to choose from, according to Moneyfacts.
How many mortgages you’ll be able to choose from will depend on how much equity you’ve got in the property.
“The largest concentration of BTL product choice can be found at the maximum 75% loan-to-value (LTV) tier, where there are currently 352 two-year fixed rate products available and 374 five-year fixed rate products available,” says Darren Cook from Moneyfacts.
Unfortunately, while the amount of choice has increased lenders aren’t battling to get your custom – average interest rates are on the rise. A typical two-year fixed rate has increased by 0.17% to 3.05% over the past 12 months.
The average five-year fixed-rate BTL now comes with a 3.54% interest rate up from 3.43% 12 months ago.
“The increase in the BTL average rates contrasts with the downward trajectory of their residential mortgage counterparts, where product competition seems to have instead resulted in rates falling,” says Cook.
“This disparity in trends is likely to be attributed to the different approach lenders take to risk between these two sectors, and that economic uncertainty may be having a more adverse influence on the BTL mortgage market than it is having on the residential mortgage market.”
Rising rates isn’t good news but the number of products on the market may mean you can find a better option when your current mortgage deal comes to an end. With over 2,000 BTL mortgages to choose from we’d recommend you speak to a mortgage broker for help finding the best deal for your circumstances.
We’ve partnered with the award winning London & Country mortgage brokers. They’ll search the market to find you the best deal and won’t charge you a penny for their expert advice. Their advisors are available seven days a week. Get in touch today.
Considering renting out your home rather than selling? Find out if you need a buy-to-let mortgage with our complete guide to becoming an accidental landlord.
Mortgages for second homes on the rise
The number of people on the hunt for second homes is on the rise, according to mortgage brokers.
Dean McCormack, a mortgage broker at AK Partnership has told Mortgage Introducer that the holiday let market is a huge growth area.
“With stagnating house prices in London lots of homeowners are looking at second homes in the countryside and the tax purposes that holiday lets have too,” says McCormack.
While buy-to-let properties are classed as investments and subject to new stricter buy-to-let tax rules which limit tax relief on mortgage interest payments. In contrast holiday lets are classed as a business by the taxman so mortgage tax relief can still be claimed.
The growing demand for holiday lets is being matched by an increase in the number of holiday let mortgages available.
“Traditionally, people needed to raise capital against other properties or buy outright,” says McCormack. But, “the market is stronger now and with specialist mortgages, people are more comfortable purchasing knowing they can get finance on these types of property.”
Find out more with our guide to getting a mortgage for a holiday home.
Five-year fix vs a two-year mortgage
The interest rates on five-year fixes have plunged this year, but two-year rates haven’t fallen at anything like the same speed. There is now only a small premium on five-year fixed rate mortgages. So, should you lock yourself into a five-year mortgage?
The average interest on a two-year fixed rate mortgage is currently 2.49%. Whereas the average for a five-year fix is 2.85%, according to Moneyfacts.
That means taking on a five-year fix won’t make much difference to your monthly outgoings. It works out as an extra £33 a month on a £150,000 25-year mortgage. But, it could make a big difference to your interest bill in the future. Anyone who locks in for five years won’t be affected by changes to interest rates until 2024.
Locking in a five-year deal also means you’ll avoid the fees associated with remortgaging regularly too.
The security of knowing your monthly repayments for the next five years adds to the attraction. Plus, the knowledge you are saving money by remortgaging less frequently.
But, before you take the plunge consider your life plans. The early repayment charges on long fixed-rate mortgages can be substantial. If you move house, borrow more or need to change your mortgage the penalties could wipe out the savings.