Should landlords fix their BTL mortgages?
Landlords should get fixed up
I have been eyeing the latest developments in the economy and the Bank of England MPC for an indication when interest rates will rise. I’m keen to fix a buy-to-let mortgage at the current low rates before interest rates start to rise. One key indicator that interest rates could be on the up is the recent employment data showing a dramatic increase in the number of job vacancies in the economy.
So when will interest rates rise?
Latest projections indicate that interest rates will move from their current historic low of 0.5% sometime in early 2015. Interest rates could be as high as 1.75% by the end of 2015 and Mark Carney has indicated that they could reach 3% by 2017. That would mean a 6 fold increase in interest rates in just three years.
The long-term average UK interest rate is about 5%. So, with the average margin on a buy-to-let mortgage of typically between 1.5 – 1.75% then landlords should expect to pay rates of between 6 – 7% on a buy-to-let mortgage. That would make any long-term buy-to-let mortgage rate below 5% a good deal.
Legacy mortgage loans
I’m relatively lucky in that most of my BTL mortgages from before the economic crash were on a base rate linked rate. Fabulous! Apart from the one mortgage with the Leeds & Holbeck Building Society, on which I’m currently paying a hefty 5.79%, compared to the best variable rates available in the market of 2.45% . It’s much too high!
Time to fix my buy-to-let mortgage?
Given all my BTL mortgages are on variable rates to fix one or two mortgages would give me greater predictability in my portfolios future loan costs, particularly should we move to a scenario where the government moves rapidly to restrict lending and money supply by raising rates. I suspect that we are near the bottom of the mortgage interest rate cycle. If you look at these graphs you can see that loan rates apart from the fixed rate mortgages have continued to fall. To me if I can fix for 5 years at less than 5%, I’m happy.
With the help of the Property Hawk Mortgages team, I’ve had a look at the best fixed rate deals currently available.
Lowest fixed rate mortgage
It is possible to fix your rate as low at 2.49%. However this is only for a couple of years. This may be useful if you need short-term certainty on your cashflow or to rebuild your capital by generating maximum rental profits. The product is with the Mortgage Works and is fixed until 30/06/2016 with 2.5% completion fee up to 60% LTV.
It is possible to source a higher LTV of up to 75% with a buy-to-let mortgage from Accord BTL, which offers a 2.84% fix for the same period but with a £2495 completion fee.
High LTV fixed rate
Kent Reliance offers the highest LTV with their 2 year fixed rate of 4.99% and a LTV of 75%. This comes with a completion fee of 2.5%.
I’m after a long-term fix so what I’m looking for is something that is going to run well into the next interest rate cycle so a 5 year fix is what I’m after.
Best 5 year fixed rate mortgages
I’m never keen on paying unnecessary fees so the Godiva 4.79% fixed rate until 30/04/2019 with no completion fee has attractions.
However, Virgin Money is offering a rate of 4.19% until 01/07/2019 and on a LTV of 70%. This may well compensate for the completion fee of £1995. I’m also tempted by the Saffron Buiding Society 4.87% mortgage product which is fixed until 31/08/2019 and has a £995 completion fee (for loans up to £500,000).
For me, it’s a case of playing around with the figures but given the Virgin product gives me a massive 1.6% off my current variable pay rate (which can only go up) even with 2 grand of fees it seems an attractive proposition.
Property Hawk Mortgages views
Andy Young at Property Hawk Mortgages comments:
“There are currently some very attractive fixed rate buy-to-let mortgages available, with at least seven lenders offering 2 year products at under 3.00 per cent. However, demand for longer term fixed rates is starting to increase and there is now a good selection of 5 year fixed rates available up to 75 per cent LTV. Saffron Building Society is offering a 4.87 per cent 5 year fixed rate up to 80 per cent LTV.
There are also 5 year fixed rates that have no completion fee from Godiva and Virgin Money and a specific House in Multiple Occupation product from Paragon Mortgages at 5.49 per cent.
The buy-to-let remortgage market is also in good shape. 48 per cent of applications received by Property Hawk Mortgages last year were for remortgages and we are expecting greater demand in 2014 as landlords look to release equity in their existing properties to fund further buy-to-let purchases. “
My Final Thoughts
As with all financial decisions you ‘pays your money and takes your choice.’ The choice for me is clear. It’s time to act and I’m keen to fix my rate now.