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B2L Interest rates

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Author Topic: B2L Interest rates  (Read 79 times)
Newbie
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« on: June 16, 2020, 09:38:55 AM »

Hi,

I'm new to the forum and last week completed on my 2nd rental property both of which are on an interest only B2L mortgage. Both are tenanted and for now all is well.

My concern centres around the potential for Interest rates to rise to unmanageable levels. Granted interest rates are currently the lowest in history but fast forward 12 months and the consequence of today's actions will likely send interest rates skywards. I mean, has anyone thought of the consequences of 10, 15 or even 20% interest rates? It's happened in other countries and there really is no reason why the UK won't go the same way...

I understand risk is part of the game and in the past I have had to dig deep to make things work but this scenario has the potential to sink any landlord on an interest only, B2L mortgage - which I imagine is most of us.

My question: is there any government protection (or similar), against this sort of occurrence?

it would be really helpful to get others views and opinions on this matter or any other potential situation that may arise

Many thanks in advance

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« Reply #1 on: June 16, 2020, 10:56:55 AM »

You might be surprised at how many Landlords are not employing IO mortgages. I have none at all. I never have, and I thought I was rare, but I think less so. I always thought IO was a broken model built for the high-life and swift scaling... so it has been repayment for me all the way. As there are mortgages in place, though, the risk of higher interests rates exists in the same manner... just that I am paying down the capital over time (therefore less interest over time)... and, for that reason, I always select the longest (or close to the longest) fixed rate available - for me that means 5 year with NatWest (two have just been refreshed for a further 5 years at interest rates I can handle). One property I have with YBS (not a BTL, but CTL) is fully offset so the interest rate there is irrelevant... a better no risk place for my savings than anywhere else.

The answer is - yes, it can all go wrong and no, don't expect any Government protection... in fact, as the welfare bill starts to rise and the taxation take starts to fall... expect the Government to see Landlords as an easy target for more revenue (again).

Add to that the fact your Tenants may stop paying rent... unless on LHA / UC... then in the current climate (right now, I mean - in 6 months there could be tempting offers around) I would not be expanding like you have.
Newbie
Posts: 2

I like property

« Reply #2 on: June 16, 2020, 01:29:44 PM »


Thanks for your reply.

My B2L mortgage(s) do offer a re-payment option (max of 10% a year), so having the choice to pay IO or Capital payment suits me better as we have more say where to place any surplus.

Our LTV is 75% on both and whilst I would be far happier if it were around (50% or better) for us to now be in this position is nothing short of a miracle.

Yes, I agree that investing in rentals at the mo is not advisable the deal was all but done just as Covid hit and whilst we could of pulled out I decided to go ahead on the basis that it is a cracking property and to try again in 12 months would be a risky move.

After all, who knows for sure that house prices will drop enough to make that consideration a worthwhile option? E.g. I would of missed out on 12 months of rental income and I would have had all the money sat in the bank - which I really don't like.

Any thoughts on picking up more rentals as the prices drop? Could a freeze on Stamp Duty be an option to get the market moving again??

Opinions, advice and warnings are all welcome!

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« Reply #3 on: June 16, 2020, 05:13:46 PM »

Any freeze on SDLT is very unlikely to apply to Landlords, would it? More likely the current kicker would be increased.
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