The Inside Edge
An article in the FT this week stated ‘Buy-to-let property owners are becoming increasingly concerned about falling rents, just as many need to refinance to more expensive, less flexible mortgage deals’.
The figures quoted state that 20,000 BTL landlords are coming out of fixed rate mortgage deals each month and finding it harder to service their BTL mortgages as rents fall in some areas (as would-be sellers are letting out unsaleable properties) and interest rates have risen.
This is a familiar situation for me as I have a buy to let property on a fixed-rate interest-only mortgage which will move onto the Standard Life standard variable rate in November.
The existing fixed rate is 4.99 % and the standard rate is 7.22 %, moving the repayments from GBP 550 to over GBP 750 – quite a difference. Luckily the rent is currently GBP 800 pcm and my tenant is a young family with children that go to the local school – giving some peace of mind that the tenants are unlikely to move out any time soon.
My mortgagor, Standard Life, are currently offering some interesting ‘Freestyle’ mortgage products – complete with flashy website and so I had hoped to negotiate a new fixed term rate – even if it would be between my previous 4.99% and their variable rate of over 7%. However they inform me that they are not offering these deals to new customers. Sound familiar? Well, after working for a mobile phone company for over 5 years I should know this line by heart – its just buisness to them after all. But they should also be aware its more cost effective to keep an existing customer than to acquire a new one – but like credit card companies they rely on the consumer’s laziness in not researching and switching deals to more preferential rates. Not this consumer though!
So my dilemma is a common one in the BTL market but I’m lucky that the property is in Reading, a town with solid economic outlook, low unemployment, and fairly resilient house prices and rental demand. I also feel I bought the house for a good price 3 years ago and the price will have to drop a good bit further before negative equity is even a consideration. So I suppose I’m thankful for the last 3 years of low interest and capital appreciation rather than resentful that this period is ending.
I’ll be adding more posts as the situation develops, hopefully some lessons can be learnt and others will find something of interest in the scenario. At the moment I’m waiting for the fixed rate to really end then I’ll be shopping around for a new mortgage and also assessing the market for selling – but I’ll have to do my sums regarding the Capital Gains Tax scenario first.