Financing your property investment

The latest projections see no immediate end to the long run of low interest rates. This week Mark Carney the new Governor of the Bank of England and the first non British Governor (a Canadian) revealed the Bank of Englands’ first ever pre-commitment on interest rates. In it he pledged to keep rates at their historically low rate of 0.5% until unemployment drops below 7%. It currently sits at 7.8%.

This historic step gives landlords greater certainty to move forward with their investment decisions. The answer to the question as to whether to go for a fixed rate mortgage or chance a variable rate may be clearer than ever before. Cleverly, Carney has not tied his hand to fixing rates for a set period. Experts are currently predicting that the unemployment rate will remain above 7% until 2016. The reality is that if his strategy of injecting confidence into the economy….it could be much much sooner.

Government strategy clear (they have no options)

The strategy of the coalition government has been clear from the outset. It’s one that Property Hawk has highlighted many times since the financial crisis, and it’s simple. Encourage inflation and lending so to avoid, deflation and thereby inflate away the huge debt. Inflation is a debtors best friend as it reduces the size of the debt providing other factors remain the same. This is all good news for many landlords who are heavily geared and for whom their biggest expense remains their buy-to-let mortgage
payments. As we have seen rents have failed to keep up with inflation but fortunately for landlords they have outstripped debt repayments which have stayed the same or even reduced giving an ever increasing margin and rental profit.

Current mortgage options

Property Hawk has decided to look at the options open to landlords looking at financing further investment in the buy-to-let sector. The 5 favourite buy-to-let products available at Property Hawk Mortgages currently are:

Low initial rates

Our favourite low rate of interest is the 2.45% available from Hinckley & Rugby BS. The discount is available for 2 years and is a phenomenally low pay rate which reverts to H & R variable rate of 5.64%. Set up costs are high for a small loan with a completion fee of £1950 and booking fee of £250. There is the offer of a free valuation fee on properties below £1 million. Max LTV is 60%.

The other low rate is a tracker offered by the Mortgage Trust of 2.88% again for a period of 2 years. This time the completion fee is a percentage of 2.5% of the loan and with a booking fee of £150. There are free valuations for purchases and remortgages & free legals on remortgages. This time the LTV is 75%

Maxing out your Loan To Value

For those looking to max out their LTV there is a 4.99% fixed rate for 2 years available through the Kent Reliance which gives a max LTV of 85%. The completion fee is again 2.5% and the booking fee is £130.

Low cost mortgage

Here at Property Hawk we love deals that don’t cost. So if you are looking at a no fee apart from the £199 booking form buy-to-let mortgage you should check out the Leeds Building Society 4.25% discounted mortagage. You also get a free valuation up to £335 for purchases and remortgages and free legals on remortgages. The max LTV is not bad either at 70%.

Fixed rate buy-to-let mortgage

If you are not convinced that interest rates are going to stay low for ever then the 4.14% fixed rate available through The Mortgage Works is fixed until October 31st 2015. The completion fee is 2.5% (min £595) and LTV is above average at 80%.

Our view

The latest pick up in the economy and the housing market could feed through to an economy thatmoves up quicker than we might have expected. Landlords who are looking at moving forward with their investment decision we reckon that the time has now come to act.

Andy Young from Property Hawk Mortgages outlines the current state of the market:
“During the first half of 2013 the buy-to-let mortgage market has continued to improve with more lenders and products for landlords to choose from. Increased competition has led to some very keenly priced rates being offered with a good selection of sub-3.00% products available from a number of lenders including The Mortgage Works, Mortgage Trust and Hinckley & Rugby Building Society – with some available even up to 75% LTV.”

Calling the direction of interest rates paradoxically in reality may be far more difficult now that Carney has stepped into the breach and attempted to fire up the confidence in the economy. I really think that interest rates could move surprisingly quickly upwards or conversely flat line for many years. One certainty – is that they ain’t going down!