Straw poll on Mortgage renewal options?

by Readers Question

15:24 PM, 20th February 2017
About 2 years ago

Straw poll on Mortgage renewal options?

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Straw poll on Mortgage renewal options?

I have been given these options for the renewal of the mortgage on one of the BTL properties I have. I thought I would put it out for suggestions from the forum members:-straw poll

(A) Product
(B) Loan Amount
(C) Property Value
(D) Interest Rate
(E) Monthly Payment
(F) Product Fee (added)
(G) Valuation
(H) Legal Fees

(A) (B) (C) (D) (E) (F) (G) (H)
2 Year Fixed £168,500.00 £255,000.00 2.05% £290.73 £1,685.00 Free Free
2 Year Fixed £168,500.00 £255,000.00 2.79% £391.76 £0.00 Free Free
5 year Fixed £168,500.00 £255,000.00 2.99% £424.04 £1,685.00 Free Free
5 year Fixed £168,500.00 £255,000.00 3.59% £504.10 £0.00 Free Free
2 year Tracker £168,500.00 £255,000.00 2.09% £295.82 £1,350.00 Free Free
2 year Tracker £168,500.00 £255,000.00 2.79% £391.76 £0.00 Free Free

Any thoughts on the above would be appreciated?

Darren



Comments

Neil Patterson

15:29 PM, 20th February 2017
About 2 years ago

Hi Darren,

I am assuming these are rates available to switch with your existing lender?

What rate are you on now?

What are the reversion rates as these are very important if you can't remortgage or change product at the end of the product term?

What plans do you have for the property and the level of borrowing?

Most importantly do you need the ability and security to budget with a fixed rate or can you afford to take the rough with the smooth on a variable rate?

There is never the same answer for two people unfortunately.

You can also see our mortgage search and quote engine here >> https://www.property118.com/mortgage-sourcing/

DARREN SMITH

17:41 PM, 20th February 2017
About 2 years ago

What rate are you on now? 2.49% and about to drop off 2 year tracker

What are the reversion rates as these are very important if you can’t remortgage or change product at the end of the product term? 5.79%

What plans do you have for the property and the level of borrowing? - long term investement and no plans to pay down etc

Most importantly do you need the ability and security to budget with a fixed rate or can you afford to take the rough with the smooth on a variable rate?
Have been happy on trackers / BMR with all mortgages over the last 15 years but not against fixed if rates are good.

Neil Patterson

8:49 AM, 21st February 2017
About 2 years ago

Hi Darren,

With a Gun to my head and I had to choose one of the above today and based on interest rate saving over fee I would go for:

2 Year Fixed £168,500.00 £255,000.00 2.05% £290.73 £1,685.00 Free Free

I think Base rate has the potential to go up 0.25% in the next year hence fixed over the variable and I would rather go 2 years and reassess what is happening at a very important political and economic point.

Peter Letts

10:01 AM, 21st February 2017
About 2 years ago

I agree with Neil.

Kris Marsh

10:20 AM, 21st February 2017
About 2 years ago

I would first collapse those costs into (1) total cost over the offer period and (2) total cost per year. That will at least give you an easy direct monetary basis for comparison. Then you can consider the fixed/variable rate vs the interest rate outlook.

Priti S

10:43 AM, 21st February 2017
About 2 years ago

Hi

Since you're comfortable with trackers, have you looked at Godiva/Coventry Building Society? Whilst not a tracker they offer their own Flex for Term mortgages which flex up and down for the whole mortgage term. No early repayment terms.

I have 3, and recently when the BBR dropped Coventry dropped my Flex for Term rates. It must be stressed the product is not a BBR tracker, nor does it track any other rate, but it has the feature of moving up or down. After doing some of the my own checking and thinking I was comfortable with this option.

If the rates changed dramatically, since there are no early repayment charges with this product, you are free to switch out.

Just a thought ..... to add to your mix of considerations ......

Seething Landlord

11:41 AM, 21st February 2017
About 2 years ago

Reply to the comment left by "Kris Marsh" at "21/02/2017 - 10:20":

I would go one step further and calculate the net cost after allowing for (a) the fact that over the next four years the tax treatment of finance costs will change dramatically and (b) remortgaging may prove difficult or impossible so you could be stuck on the reversionary rate well beyond the fixed term.

Laura Delow

12:51 PM, 21st February 2017
About 2 years ago

Firstly I would ask if the rent would allow you to remortgage if a better deal exists with another lender? If not then in every instance I feel you should take the arrangement fee (AF) deal because it costs less in fee than the extra interest you'd pay over the fixed/tracker period by taking the no AF deals.
Secondly is £255,000 your current lender's indexed value of your property or what you know it to be worth? I ask cause if the value could be likely worth £260,000 (£259,231 to be precise) then you could get 65% loan to value deals which can be lower if your lender has these in their goody bag. If they do, it might be worth trying to argue the case if you're confident it's worth more & see if they'll agree to an up to date valuation. At worst they say it's still only worth £255K & you've lost your valuation fee & back to choosing which of the above products you want.
Third, unless you think bank base could go down further in the 2 - 5 year period chosen, I'd go for a fix vs a tracker in case bank base does start to climb.
Next, is the term of the fix to go for & therefore your view of what fixes will look like in 2 years time. If bank base rises then fixes will rise, however it's not an exact science as rates are not inextricably linked to bank base as it also depends on a) how hungry your lender is for new business in 2 years time assuming they offer you the same deals they offer new customers b) how they compare with their competitors in the marketplace at the time which may mean it drives down their rates in order to compete c) how stretched they are in making money out of tight margins whereby they may offer lower fixes but charge high AF's or more likely, know you're a mortgage prisoner due to tight rental calculations & only offer existing customers less attractive fixes vs what they offer new customers. Example:- the 2 year Fix with £1685 AF added = £3199.48 less in interest payments over the 2 years vs the first 2 years of the 5 year fix, BUT in 2 years time you'll need to grab another rate & pay another AF & even assuming no increase in fixed rates on offer or AF's charged, will cost you another AF of £1685 to grab a new rate = this £3199.48 saving is now only £1514.48 over the first 2 years. If AF's are higher in 2 years time and/or Fixes on offer are higher, you could end up wiping out all this £3199.48 saving or more. Alternatively, if you take the 5 year Fix to avoid this scenario in 2 years time, you'll pay £1600 pa more interest which could worsen your tax position vis a vis Clause 24 albeit this won't be full blown until 2020/21 & this £1600 pa (£133 pm) may be important for you to have in your pocket today.
Good luck.

money manager

8:34 AM, 25th February 2017
About 2 years ago

Consider the rate/fee equation as the impending S24 offers an asymetry of treatment. By paying a high fee in this tax year (fully relievable) and consequently paying a much lower rate (increasingly only partly relievable) there can be an advatage to be had. The same holds true for associated costs inc broker and survey fees, we just went for a five year fix on renewal at just over 2% on that basis. Hopefully by the end of the fix the Alice in Wonderland S24 will be history.

Anthony Endsor

21:15 PM, 25th February 2017
About 2 years ago

If you say the reversion rate would be 5.79%, that is frighteningly high when you consider the initial rates. If you're in it for the long term, you might be better off with a 5 year fixed. this would save you the ever increasing costs of remortgaging and take you a further 3 years down the long term track, possibly getting rid of the need to remortgage again altogether, depending on how long your definition of 'long term' is.
I would go 5 year fixed 2.99%. The saving of £80 a month will more than cover the £1,685 fee over the 60 months.


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