Buy-to-let mortgages shift towards tracker rates

Stephen Smith, Director of Housing at Legal & General said: "There has been a distinct shift towards tracker and variable rates by landlords but the move is less pronounced amongst residential borrowers.

"The proportion of buy-to-let mortgages on variable rates arranged through our Mortgage Club has doubled in three months, from 13% to 30%.

"However, our data shows that landlords have traditionally preferred variable rates of one sort or another and that the big leap we have seen is from a low starting point. In Q1 last year, for example, over 60% of buy-to-let mortgages were on variable rates.

"Average two year rates have dropped from 5.46% to 4.99%, but three and five year rates are up 92 basis point and 103 basis point respectively. This indicates how strong the belief in the money markets is that interest rates will rise over the coming few years. Those borrowers that have recently been taking out tracker rates will need to factor this in.

"To a certain extent, the low-interest rate environment may be creating an illusion that the economy is ‘back to normal’ and that the recession is nearly over. In fact, bank base rates at this current level are far from normal and things will not go on like this forever."

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