If you're reading this blog, chances are you've seen the turmoil in the mortgage market caused by last week's 'Mini-budget'.
In this article, we're going to explore the mortgage market for landlords and why now may be the best time to re-mortgage for the foreseeable future, especially if your fixed-rate mortgage is coming to an end.
What is happening?
Bank of England base rates on borrowing have recently increased by 0.5% to a total of 2.25%, which is the highest it has been since November 2008. This in itself, after a decade of the base rate being under 1%, doesn't sound like too much of a problem. The problem is how this rate is set to increase over the next 12 months, with many indicators predicting it to be upped as high as 5.8%, which would make it the highest it has been since February 2000.
This is how the problem starts as many mortgages on buy-to-lets & properties overall have been taken out in a time when the base rate was very low, and of course, lenders then add their own fees onto this rate.
Mortgage market uncertainty
This week, several high-profile lenders stopped offering mortgages, as they were unsure of the interest rate they should be charging. At this early stage, there are a lot of things we don't know, and we don't know exactly what figure interest rates by banks & mortgage lenders will rise to.
What we do know is that they will be considerably higher than they are right now, which means if you are on a fixed rate mortgage where your fixed term is due to end, now may be the time to look at re-mortgaging at the rates you can still get today. This rise will also affect your profitability if you are on a variable rate.
I'm on a fixed-rate mortgage, what should I do?
First of all, it depends on when your fixed term comes to an end.
Many fixed-rate mortgages come with a term of 3-5 years, which may give you another 3 years until your fixed-term ends.
If this is not the case, now would be the time to look at re-mortgaging and see what rates you can get out there in the market, otherwise, you risk a massive increase in your monthly mortgage payments.
How the numbers stack up
Many buy-to-let investors buy a property with an interest-only mortgage over the course of 10 to 15 years.
If you bought a property with a mortgage product like this 5 years ago, your interest may have only been 3.5 - 4%.
Say your property had a value of £250,000, you put 25% down, had a fixed term of 5 years at 4%, and borrowed the other 75% of the value (£187,500) over a period of 15 years.
Your 4% yearly interest repayment would cost you £7500, or £625 per month.
Let's say your fixed-term comes to an end next bring, where your interest may very well become 8% instead of 4.
This would increase your monthly interest payments by 100%, totaling £1250 per month or £15,000 per year.
This could wipe out a lot of the rental profit from your property, leaving you worse off amid a cost of living crisis & rising inflation.
It's for this reason we believe re-mortgaging your property before the end of this year on the rates currently available is the most viable option for a lot of landlords out there to stay profitable & make keeping their properties worthwhile both short & long-term.
Please be advised: The numbers & figures in this article are for example only, and it is best to speak with your local letting agent & mortgage lender about the property market, the mortgage market, and come to a decision that is right for you & your property.
Speak with our team below about your mortgage options & we can recommend you to our preferred partners who are specialists in BTL mortgages.
