Ten-year fixed-rate loans: How will this affect the Buy to Let market?

Recent news has highlighted a dearth of private sector BTL landlords across the UK right now. Not only are existing portfolio landlords selling up in the face of a tougher tax regime for the sector, potential new landlords are opting for easier options, that are less penalised by the Government.

That’s something that’s also being exacerbated by the likelihood that UK interest rates will rise further over the coming months and years.

In an attempt to attract more BTL landlords back into the market in the face of all of the above, a number of lenders now offer 10-year fixed rate BTL mortgages. With a 10-year fixed-rate mortgage, the landlord will know the minimum monthly payment they need to make on their mortgage for the next ten years. And, some lenders are even allowing an over payment of up to 10%, without any additional charges.

But, will the rise in a longer fixed-rate BTL mortgage product, be enough to encourage more BTL activity?

Possibly

When it comes to investing, its safe to assume that anything could happen. That’s because no-one can predict the future. However, if a landlord knows, for certain, what their regular monthly mortgage payment will be for 10 years, they can then make a more informed decision as to whether or not becoming a PRS landlord is an affordable and potentially lucrative option.

A 10-year fixed rate BTL mortgage would likely be attractive right now for two main reasons:

  • Interest rates are set to rise, albeit at a slow pace.
  • The RICS – and other respected bodies – are forecasting a steep increase in rents over the coming five years.

Even when you consider the need to put aside a contingency for any problems that arise unexpectedly and for longer term improvement plans, certainty over your minimum monthly mortgage payment for 120 months, goes a long way to giving landlords financial peace-of-mind.

Maybe not?

However, while there are a number of positive arguments supporting 10-year fixed rate mortgages, there are also still some negatives for BTL landlords.

As well as the above-mentioned additional tax pressures on PRS landlords, there are also new regulations to contend with. They include having to offer longer tenancies – which can work in many cases, but not all. There’s also the fact that properties now need to be more energy efficient, which for some landlords, will require hefty investment.

In addition, there’s growing interest in build-to-rent properties which are attracting institutional investors and reducing the number of tenants willing to barter over rent for property held by a BTL landlord.

Put together, you can see there’s quite a lot to be aware of, even if you know and can cover the monthly BTL mortgage on a 10-year fixed loan.

As always, each individual case is different. Only you, a potential or existing BTL landlord, knows what you need to encourage you to stay in the sector and grow your portfolio, or to take that first step and buy your first BTL property.

However, for those who are happy with the market, then a 10-year fixed BTL mortgage could help strip out a little of the uncertainty and make it a more lucrative option.