This week has seen the launch of a new range of Buy To Let Mortgage products which was generally met with a warm welcome on Twitter by Property People.
The fanfare launch focussed on the Two-Year Fixed Rate product of 4.59% with fixed fee of £1995 but little reference was made to the margins above Base Rate these products refer to at the end of the initial promotional period – in the range of 3.5-3.99%.
With Base Rate currently at 0.5% margins of around 4% may seem quite manageable, even reasonable. But should we believe 0.5% is ‘normal’? Do Property People really think that Base Rate will be at this level in Two to Three years time?
If we expect the Base Rate to rise then at what point does this product become difficult for the average Buy To Let Investor to manage? Whilst rental returns might be good at the moment, returns of 7-10% are rare and this is the sort of return an Investor would need to cover a mortgage of say 6% when taking account of all other costs.
Assuming Base Rate in two years’ time is going to be higher than it is right now, even a 0.5% increase will take that mortgage to over 5%. For a £200k mortgage, every 0.5% increase will cost the Investor another £1k per annum. Will Investors be reaching for the phone to refinance?
This is where we return to the subject heading:-
Will you be able to refinance your buy to let in two years’ time?
Much depends on what property prices are going to do in the next two years, the Loan To Value you opted for and whether you still meet all the tough criteria that banks have now set out for their Buy To Let products such as
· minimum salary required
· good credit rating maintained
· number of properties owned
· rental cover requirements
Many Investors found themselves unable to refinance their Portfolios during the downturn as property prices fell and Lenders reduced the % Loan To Value that they were prepared to offer. Many withdrew from the market altogether, leaving some Investors with nowhere suitable to refinance.
Do Investors believe that Property Prices are not going to fall again and that Lenders are not going to start closing doors again?