It’s an interesting time for landlords. The rate increases that were promised many months ago have yet to materialise. At the same time rent is trending upwards with Mortgage Strategy reporting that almost 1/3 of landlords put rent up this year. However with significant risks built into every product (a standard variable rate that is too high for your current rent) many landlords should look to lock down a fixed rate and protect their profits.
My Rent Is Fine: Why Should I Worry?
I’ll start by saying I’m not advising you one way or the other – it’s up to you and your professional mortgage adviser to make the ultimate call. What I would like to do is just highlight a major problem many landlords have in their portfolio with a simple example.
Rental Income: £600 per month
Mortgage Rate: 2 Year Tracker 3.9% (reverting to 6.5% variable).
You’d probably feel pretty comfortable with this position but let’s look forward two years. Inflation and the seeds of recovery could easily come at the same time as your rate ends. Base rate 2% higher pushes your reversion rate to 8.5%.
Easy solution – remortage to another provider. Well that might not be as easy as you would imagine. With the requirement that your rental income be 120% of your mortgage becoming increasingly common and typical trackers 2% higher (5.9%) your property doesn’t meet that rule any more and with rates set to move up you face a long period of making losses.
The Alternative: Guaranteed Profit and Security (Subject to Tenant Availability!)
You could take the alternate view that instead of increasing your profit now and taking a short term deal you could consider a longer term deal such as the Leeds building society 5 year fixed rate. At 5.99% it gives you a current payment of £499 locking in a profit of over a hundred pounds a month for 5 years. With rent likely to creep up this could settle in nicely for you.
This article isn’t mortgage advice – just some simple maths to illustrate how more profit might be available monthly from picking a nice low short term tracker but that does come with some risks. A lower, but more stable profit over the long term might suit some buy to let landlords. It’s important that you and your adviser consider all the aspects of your plans, financial stability and ability to absorb short term losses before you make a decision.
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