Research by specialist broker Mortgages for Business has revealed that during the first quarter of 2013 buy to let rates fell by an average of 0.33% when factoring in fees.
Two year fixed rate products at 65% LTV fell the most by 0.69% over the quarter and now stand at an average of 5.27% including fees. In general two year rates to 75% LTV have fallen sharply compared to last year.
Headline rates (excluding fees and other costs) fell by an average of 0.27% across the same period which, when compared to average rates including fees, demonstrates that overall fees have decreased slightly which is good news for borrowers.
Interestingly the gap between three and five year rates narrowed over the quarter and in many instances five year rates are similarly priced to their three year counterparts. As there are more “specialist” products available in the three year sector, the average cost of three year products can be higher than the average for the five year products.
Throughout 2013 3 month LIBOR has been virtually static although in mid-April it finally fell down to 0.50% matching Bank Rate for the first time in recent years. Swaps rates for 2 years have fallen 0.20%, 3 years by 0.25% and 5 years by 0.30% – all reflecting the effect on medium term rates of general expectations that interest rates will remain low for the foreseeable future.
Equally significant for borrowers has been the reduction in the average cost of borrowing over the related benchmark rate. The margin over LIBOR of all of the trackers has fallen by around 0.3% to 0.4%; the margin on fixed rate products has fallen much less (typically less than 0.2%) but with the margin on low loan to value 2 year fixes falling by as much as 0.56% in the period. These reductions in the margins must be to some degree attributable to the effects of the Funding for Lending Scheme so the fact that the scheme is being extended is also good news.
In Q1 2013 lender arrangement fees, valuation fees and legal costs added an average of 0.52% onto the headline cost of a buy to let mortgage. This has dropped slightly since the beginning of the year when the figure stood at 0.57%. Costs were at a peak in 2010 when across all product types they added an average 0.66% pa to the average cost. Unsurprisingly they have a greater impact on short term (2 year) mortgages where in 2010 they added an average of over 1.1% to annual costs whereas this is now around 0.82%.
Of the buy to let mortgage products available in Q1 2013, 9% had no lender arrangement fee. This figure is up 1% on the previous quarter. 43% of products had percentage-based lender arrangement fees of between 1-3% compared to Q4 2012 when 46% of buy to let mortgage products carried a percentage-based fee. Nearly half (48%) of all buy to let products had a flat lender arrangement fee, up 2% on the previous quarter. The average flat fee is now £1,534, down £24 on Q4 2013. Overall these figures are good news for borrowers and demonstrate that competition between lenders has intensified.
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