Distressed BTL Mortgage Options
Many landlords have recently come to the end, or are coming to an end of their fixed term buy-to-let mortgage.
The current financial environment presents these landlords with some difficult choices. These have been heightened in recent weeks with the further deterioration of the financial credit markets recently highlighted by our own Hawkeye.
One year London Inter Bank Offer Rate or Libor is currently at around 1.5% above the base rate and the FT at the weekend highlighted that rates are once again on the rise. This forces up the cost of borrowing for banks and also the likely cost of buy-to-let mortgages.
Moneyfacts has recently highlighted that 85% of buy-to-let mortgage products have been removed from the mortgage market over the last year. In fact, last week alone 25% of buy-to-let mortgage products were removed according to Moneysupermarket.com.
The result of all this for LANDLORDS coming to the end of cheap two-year fixes face payment shocks of almost £300 a month on a typical £150,000 mortgage, as house prices fall and BTL mortgage lenders pull their competitive deals.
A quick browse through the Property Hawk BTL mortgage search facility shows a landlord will struggle to find a buy-to-let mortgage that has a pay rate of less than 6%. There are a number of tracker products of over 6% such as BM Solutions 6.29% 3 year tracker or Norwich & Peterborough’s 6.6% 25 year tracker with a relatively low APR of 6.8%.
Mortgages For Business continues to offer several Discounted 2 & 3 year tracker deals at less than 6% which could be attractive to landlords keen to keep down their mortgage payments whilst funding markets return to more normal conditions.
Good news & how to avoid a BTL mortgage meltdown
Hawkeye pointed out last week that there may be some good news coming along in the form of interest rate reductions and this was confirmed on Wednesday when the Bank of England announced that the base rate was to be reduced by a full 0.5% taking it down to 4.5%. However, this may come too late and not be enough for many landlords facing sharp increases in their mortgage costs.
Property Hawk has therefore highlighted 8 things that in opur opinion, landlords can do to help avoid a buy-to-let mortgage meltdown when their fixed rates come to an end.
1. Don’t fix. We are going into a depression which could well be protracted, lasting several years. This all means that interest rates are heading down. Some economists have predicted interest rates of 3.5% by the end of next year. This all means that landlords fixing now could be kicking themselves in a years time when rates are far lower.
2. Avoid brokers fees. Landlords who are prepared to do much of their own leg work can find a buy-to-let mortgage themselves. To find out how, have a look at The Undercover Landlord’s recent experience of finding a buy-to-let mortgage.
3. Check the APR. Attractive headline rates are tempting. When a BTL mortgage broker tells you that you will only be paying £x with the new rate saving yourself a couple hundred pounds a month, a landlord’s initial reaction is yippee! However, a landlord should hold fire. What is the true rate of borrowing? The Annual Percentage Rate or APR shows the real cost of the loan by including: fees, and the reversion rate for the loan after any initial introductory rate had ended.
4. Avoid LIBOR pegged buy-to-let mortgage products. The turmoil in the financial markets have been largely the result of the fact that banks no longer are prepared to lend to each other. This has forced LIBOR rates up to unprecedented levels in recent months. If a landlord is unlucky enough to have borrowed on rate linked to LIBOR they will be paying a rate much higher than those pegged against the Bank of England base rate.
5. Struggling to meet your mortgage? Landlords who can’t make the sums add up shouldn’t ignore the situation. They should get expert advice from a mortgage broker about how they could reduce their payments whilst mortgage market free up. If they are unable to make the buy-to-let mortgage payment, then don’t ignore the problem. Landlords should talk to their lender early to see whether payments could be reduced or rescheduled.
6. Avoid high fees & charges. However, attractive the pay rate landlords should avoid high fees & charges which could easily cost more than they save on their reduced monthly mortgage costs.
7. Get advice early. Landlords that are struggling to refinance and have been unable to find a mortgage themselves should seek advice. Contacting a mortgage broker will enable a landlord to get free advice and may just deliver a solution that they have been unable to find on their own.
8. Get paid for taking out a mortgage. Landlords that who are prepared to find their own buy-to-let mortgage can potentially get paid for taking out a mortgage. Find out how to make money from your own mortgage.