2-year fixed rate products at 65% loan to value experienced the most significant drop and fell by 0.69% over the quarter to 5.27% including fees. In general two year rates to 75% LTV have fallen sharply compared to last year.
David Whittaker, managing director of Mortgages for Business, said: “This is good news for property investors looking for finance.
“It’s interesting to see that the effect of costs on rates are beginning to fall back to their pre-credit crunch level which is a sign of continued market improvement and could be contributing the marked increase of buy-to-let remortgage activity witnessed in Q1.”
Headline rates (excluding fees and other costs) fell by an average of 0.27% across the same period.
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 (two 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.