How canny landlords are beating the Brexit blues
Our latest guest blog from Property Master takes a look at how landlords can stay one step ahead of Brexit blues by being savvy with their buy-to-let mortgage.
It’s hard to think of a time when the next few weeks and months could be so crucial. The Brexit clock has been ticking down now since that referendum back in June 2016. But the uncertainty around what will happen at the end of this process is causing many a landlord to wonder if the buy-to-let market will still a good place to be.
Uncertainty has hit confidence generally when it comes to property. Nationwide’s last House Price Index shows that UK house prices grew at an annual pace of just 0.5% in December, the slowest annual rate since February 2013. Since landlords look for the value of the properties they own to grow over time, this is not good news.
Then there is also the outlook on interest rates. Pretty much any economic commentator you care to consult will warn that rates are on the way up this year. A number are tipping two quarter point increases before the end of 2019 taking the base rate to 1.25%. We haven’t seen the base rate at more than 1% for ten years. Worse than that if Brexit goes badly might we see the Bank of England raise rates faster to prevent money leaving the country?
For many landlords decisions about their property portfolio cannot be put off. Fixed rate mortgage deals have fuelled the buy-to-let market and if your fixed rate is coming to an end a decision must be made. Do you take out a new fixed rate and if so, over how many years? Or do you simply default to your lender’s Standard Variable Rate (SVR) until the fog clears? After all, at the moment it’s hard to find certainty over the next few weeks let alone predict the next two or five years.
Defaulting onto a SVR can be a very costly mistake. Recent research from online buy-to-let broker, Property Master, shows that Standard Variable Rates on an interest only loan of £150,000 can cost anything from £218 to £349 a month more than a typical two- or five-year fixed rate. The same research also shows the monthly cost of fixed rate five-year interest only mortgages was down year on year – in some cases by as much as £29 per month. So, there are still some good deals out there.
Thankfully squaring the circle in terms of giving landlords certainty but not locking them in for the full length of a fixed term loan has come in the form of greater creativity from lenders. There are now more than 2,000 mortgage products on offer for landlords as lenders compete to win business from a smaller number of customers.
One of the most interesting new products, given the uncertainty around Brexit, is the flexible mortgage. Flexible mortgages offer the advantage of fixing your rate for a period of years but also giving you the option of leaving before that period ends with no early repayment fee. Landlords also benefit from being able to underpay if, for example, a property is empty or overpay when times are good. Basically, a flexible mortgage puts the landlord much more in control of his or her finances without the worry of a sudden change in interest rates.
Rana Faza, a buy-to-let mortgage expert with Property Master reports landlords as being pleasantly surprised by the benefits of the new flexible mortgages. “Landlords generally have never heard of flexible fixed rates so when one of these products come up at the top of their search results it goes against their instinct to select that option.”
She continued: “Lately, our team has been speaking to an increasing number of landlords whose mortgages have come up for review but who are feeling uncertain about how Brexit will pan out and who have been hit hard recently with tax relief cuts eating into their investment income. Many are hesitant to make long term financial commitments. They are usually surprised that such products as a 5-year flexible fixed rate exists and question why they have never heard of them before. A flexible fixed rate product can offer landlords the benefit of a consistent mortgage payment amount over a period of 5 years however, they will not be penalised on over payments or early redemption meaning they have the freedom to switch to another deal before the 5-year period ends or pay off their mortgage early.”
There is another positive side to the Brexit story for landlords. Whilst buyers and sellers sit on their hands and hope for clarity, house prices are softening and opportunities are there for the taking. An estimated £1.6bn has been wiped off values over the past year. The shortage of housing remains a big issue in the UK and is likely to remain so for many a year. Landlords aided by a more competitive and creative lending market should ensure the private rented sector remains an excellent investment option – whether we are in or out of Europe.
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