Would you refinance off a rate of 2.25% onto a rate of 5%?

by Mark Alexander

11:37 AM, 14th December 2010
About 10 years ago

Would you refinance off a rate of 2.25% onto a rate of 5%?

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Would you refinance off a rate of 2.25% onto a rate of 5%?

As a stand alone question, the logical answer would be ‘of course not!”.  However, some landlords are doing this and for very good reasons.

In some areas of the UK, rents have increased substantially as a result of high demand and low supply of quality rental property.  The lack of mortgage finance has contributed to the high demand for rental property but has also contributed to low values.  If people can’t obtain mortgage finance (owners and investors) the value of property falls.  When mortgage availability improves what is likely to happen to property values?

Some investors have recognised this opportunity and are looking to cash in on it.

It’s a numbers game at the end of the day and sometimes it is worth paying the higher rates if there is enough equity in a portfolio to create opportunities to buy.

The key factors to consider are:-

  • Do you think properties will recover in value when mortgage availability improves?  If the answer is no there is not much point thinking this process through any further.
  • How much equity can you release?  If the answer is none, or very little, stay where you are.
  • How much would the new mortgages cost?
  • What/where would you buy if you could and what would the returns be?
  • How much extra rental could be generated from new purchases?
  • After all income and costs are considered, how much better or worse off would you be every month if you were to buy more properties?
  • If you would be better off every month the decision is far easier to make.  However, even if you are worse off, you need to factor in whether you can afford to take a step backwards in terms of monthly cashflow in order to benefit from future capital growth.


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