To fix or not to fix that is the question for a first timer

by Readers Question

10:50 AM, 24th January 2014
About 7 years ago

To fix or not to fix that is the question for a first timer

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To fix or not to fix that is the question for a first timer

Hello all,

I am a prospective first time landlord and am asking for any advice regarding buy to let mortgages.

I am looking to buy a property for around £80k (with a £20k deposit). The best interest only mortgage I can find is a 2 year fixed rate mortgage at 3.7% (£185 per month), or a 5 year fixed rate at 4.64% (£232 per month).

I plan to keep the property for the mid to long term, so bearing in mind interest rates may well go up in the next year, I am considering fixing for 5 years. The only big drawback I can see in doing this would be if I wanted to re-mortgage during this time, as I would incur a 5% early repayment charge within the first 3 years, and a 3% charge after this.

What are people’s thoughts about fixing for the longer period? Do you think it would be better to go for the shorter term to have greater flexibility or go for the longer term to have more peace of mind?

Any advice is much appreciated.

Thanks

Daveto be or not


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Comments

Amanda Yeates

16:56 PM, 24th January 2014
About 7 years ago

Hi Dave,
Much as I hate paying more for a fixed rate, I would suggest you focus more on how much of a margin you will make between your rental prices and your mortgage cost, and if it is still healthy, go for the fix and give yourself peace of mind. Remember your rental rates will go up and the margin will increase (albeit any service charges may increase but you have not mentioned this).

Simone Gilks (Mortgage Adviser)

18:21 PM, 24th January 2014
About 7 years ago

Evening Dave

Of course I can see your concerns about Interest Rates and at the moment I am finding many of my clients raising concerns on the future of interest rates - they are now considering 5 year fixed when before it was out of the question. It doesn't help when a local bank manager tells me he has put the variable up from 3.5% to 5.2% due to the possible rise on the money markets (LIBOR).

But that said, what I would like to see is you taking the correct advice from a broker and not from the internet as many of these lenders will not lend on properties under £100,000....that seems to be in the small print!

Of course you need to consider what if the rates went up, can you afford it and in fact to what point....5%, 6%, 7%.....because in my day they were at 8.5%.

So maybe do take a long term practical approach whilst the rates are low and Fix for as long as you can. But more importantly speak with someone like me first to make sure its with the right lender - one that will accept you.

Many thanks as always

Mark Alexander

22:15 PM, 24th January 2014
About 7 years ago

I concur with Simone, one of the reasons you should use a fully insured professional adviser is that lenders have very different rules, criteria and deals for further advances.

A further advance is one of the least expensive ways to withdraw extra capital if you are fortunate enough to experience capital growth and rent rises. Refinancing can be very expensive!

I have referred quite a few clients to Simone and feedback has been very positive 🙂
.

Howard Reuben CeMap CeRER

13:09 PM, 25th January 2014
About 7 years ago

Hi Dave

One thing that many mortgage salespeople forget to mention to BTL borrowers (whether 'newbies' or experienced) is that another piece of the jigsaw is the overall 'total to pay' during the initial special offer period.

The headline rate is just one piece, but lenders arrangement fees, valuation fees and closing administration fees (which are in addition to the early redemption penalties) are all to be factored in too.

Low BTL rates for a variety of special offer periods are available but the majority of these 'cheap' deals have a huge sting in the tale - the high lenders arrangement fees.

To have a full and thorough discussion to determine your actual 'best value' options, I strongly recommend that you liase with a professional whole of market financial adviser, and of course any of my team would be pleased to offer our service wherever you are in the UK.


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