| Reduce your exposure to interest rate rises | | Print | |
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It's widely expected that interest rates will rise at some point this year; Mark Carney, the Governor of the Bank of England stated that interest rates would not rise until UK unemployment fell to 7% which was actually achieved in 2014 but the Bank has as yet, held interest rates at their historic low. Many landlords use mortgages to finance their portfolio, and for those who are on variable rate products, now could be the time to fix these rates to protect against exposure when rates to begin to rise.
The National Landlords Association (NLA) has recently published two case studies to illustrate the possible effects of interest rate rises on buy-to-let investors:
Landlord with Variable Rate mortgage
A landlord client has purchased a property for £160,000 with a buy-to-let mortgage at 70% loan-to-value and expects to receive £650 per month in rent. The client has chosen a 2-year tracker product at BBR+2.89% with a £995 arrangement fee added to the loan. The current monthly mortgage payment is £319 per month. If we assume that Bank of England Base Rate rises gradually to 2.5% over the next two years, the landlord would end up paying a rate of 5.39% resulting in a monthly payment of £508. That's almost £200 more each month for just one property. If you then factor in any void periods, management fees and maintenance costs this scenario could result in them running at a loss.
Landlord with a Fixed Rate mortgage
A landlord client has purchased a property for £160,000 with a buy-to-let mortgage at 70% loan-to-value and expects to receive £650 a month in rent. The client has chosen a 4.39% 5-year fixed rate with a £1,995 arrangement fee added to the loan. The current monthly mortgage payment is £417 per month. If we assume that Bank of England Base Rate rises gradually to 2.5% over the next two years, the landlord in this example will continue to pay £417 per month for the mortgage.
It stands to reason that although a fixed rate mortgage may have a higher monthly repayment, the potential savings in the longer term could be significant if interest rates rise. For some landlords, a rise in interest rates could cause the portfolio to be unprofitable, and we would urge that all mortgages be reviewed to ensure investments remain profitable.
AMRP has teamed up with a trusted mortgage broker to offer landlords the ability to review their mortgage products and aim to protect against interest rate rises. To find out more, or to receive a call back from our partner, please contact us on 0191 640 4604, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or complete the form below.
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