Many industry figures have highlighted the sharp increase in five-year fixed rate business among landlords, pointing to the different stress test rules. Fixed rates over this term are subject to much more lenient testing, allowing borrowers to access larger funding than over shorter-term deals.
However, brokers have expressed concern that this is essentially regulation leading the market, and represents a step away from principles-based regulation.
James Mole, mortgage and protection adviser at Gingko Independent, said that regulations have “forced” borrowers to take five-year products when they may not be suitable.
He added: “On the one hand, the rules slow down the typical landlord’s aggressive growth strategy, and that’s what the aim of regulation was. However, five-year fixed products are there for those who are risk averse and don’t mind paying more in terms of rates and sometimes fees. If the consumer is not worried about a rate rise, is it fair that they have to pay this un-needed expense? I would suggest not. Looking after consumers is the right thing to do but I question the way this has been implemented.”
David Sheppard, managing director at Perception Finance, said that the fact that lending is easier for those going for five-year deals means borrowers are “going down that route out of necessity rather than desire”.
He continued: “That said, the alternative is that lenders have to have the same criteria regardless of the length of the rate and that could lead to worse outcomes. For brokers looking at remortgage options for their buy-to-let clients, the key will be seeing which lenders have better criteria for pound for pound remortgaging where they are able to use the fact that the regulator does not want to see more mortgage prisoners.”
Sheppard called on industry bodies to do more to fight the approach towards buy-to-let being taken by the authorities. He said: “I think there is a case for lobbying right up to governmental level on the changing face of buy to let. The regulators are bringing rules in on stress testing as a result of tax changes to this sector which ultimately leads back to the Treasury and the Chancellor to consider the implications of past tax changes and see what can be done to not stifle the market more than it already has.”
Stuart Gregory, managing director at Lenture Mortgage Consultancy, said that lenders were always going to adapt their offering to ensure they could still support the buy-to-let sector, adding: “The direction of landlords moving towards longer term deals such as five year rates will progress further – especially when the landlords’ accountants begin those difficult discussions with their clients about their plans for the future.”