On the 20th of September, the State Bank of India turned heads when it revealed its two-year fixed-rate deal for new buy-to-let customers at an impressive 3.9%. This came as a surprise to many, especially when considering that it’s been over a year since the buy-to-let market saw two-year fixed rates below 4%.
What’s even more astonishing is that no other lender has even ventured below the 4.5% mark for two-year rates recently. Nick Mendes, a representative at broker John Charcol, described this move as a “shock rate announcement” and hinted that this lucrative offer might not be around for long. Why? The deal seems too good to be sustainable for an extended period, both in terms of costs and service.
The Nitty-Gritty of the Deal
Before diving headfirst into this deal, let’s understand its finer details:
- Rate: The mortgage is pegged at a fixed 3.9% rate for two years.
- Deposit Requirement: Borrowers must be prepared to put down a 50% cash deposit or its equivalent in equity.
- Arrangement Fee: It carries a rather substantial 5% arrangement fee, which might raise a few eyebrows. However, given the competitive rate, many believe this to be a palatable compromise, especially for BTL investors who can see beyond the immediate costs.
The overarching consensus among brokers is that this is an enticing option for a considerable number of BTL investors. However, there’s a catch: the amount of money available for this deal is likely limited. Meaning, if you’re considering capitalizing on this offer, you might want to make your move sooner rather than later.
What’s Driving This Rate War?
State Bank of India’s move is not an isolated event. It’s part of a broader trend where multiple lenders are slashing their two and five-year fixed rates for BTL borrowers. In fact, just last week, several lenders introduced five-year fixed rates below 5% for residential borrowers. Rates haven’t been this tempting in quite a long stretch.
But why are these rates dropping? A primary reason can be traced back to the decline in ‘swap’ rates. For those unfamiliar, swap rates are the wholesale interest rates at which banks lend money to one another. These rates significantly influence how banks price fixed-rate mortgage deals.
Interestingly, the downward trend of these rates suggests that the market is anticipating that interest rates have nearly reached their zenith for this cycle. Echoing this sentiment, the Bank of England Governor, Andrew Bailey, hinted that we might be close to the peak, although there’s always the possibility of another bump when the Bank’s Monetary Policy Committee convenes.
Riz Malik from R3 Mortgages paints a broader picture: the cost for two- and five-year fixed rates has been on a steady decline. He believes that even if the Bank of England decides to hike the base rate, this downward trend in fixed mortgage rates is likely here to stay. He cites Andrew Bailey’s projections and the current economic scenario, hinting at a looming slowdown or even a recession. Lenders, sensing the shift, are aiming to meet their lending targets for the year, leading to the “little and frequently” rate drop tactic prevalent in the market.
Making Your Move
For potential investors or those considering switching their mortgages, now might be an opportune time. With an array of mortgage calculators at your disposal, you can determine how repayments might impact your finances, the savings you might accrue by remortgaging, or the benefits of overpaying.