With many landlords coming off fixed rate deals this year, they will be faced with a large increase in their BTL mortgage payments.
The increases to the stress tests may mean landlords have more limited lender options going forward because the rent no longer covers the mortgage loan.
Karen Noye, a mortgage expert at Quilter, says some landlords may find that their only option is a product transfer with their existing lender unless they are in a position to pay some of the mortgage off.
Determining rates
So what type of BTL investor/landlord suits a variable or fixed rate?
At Just Mortgage Brokers, director Carl Shave says more than 85 per cent of their BTL clients are recommended and opt for a fixed rate for stability of rent reviews,
He says in determining which type of mortgage suits the BTL investor or landlord, the type of product is very much linked to circumstances rather than perhaps the individual.
Circumstances can relate to the investors plans and that of the interest rate outlook.
Noye says landlords wanting to remortgage away from their existing lenders may have to consider longer-term fixed rate products to meet the lenders’ stress tests for their current mortgages, meaning they will be locking themselves into a product with penalties when rates are higher than previously experienced.
Alternatively, she adds: “They may wish to consider going onto their lender’s variable rate to have more flexibility and to give them time to see how the mortgage markets go, though this might result in too much of an increase for some to bear.”
There are lenders that are offering client lifetime trackers and two-year trackers with no early repayment charges, allowing for flexibility to switch to a more competitive fixed rate when the opportunity arises in the future.
Also, some lenders can do 100 per cent debt service coverage ration (DSCR), rather than stressing at 140 per cent (higher rate taxpayers) or 125 per cent (for limited company or basic rate taxpayers). These lenders are offering product purely working on pay rate, explains Nicholas Mendes, mortgage technical manager at John Charcol.
DCSR is a key measure of a company's ability to repay its loans.
Mendes adds: “The privilege to choose between a fixed or variable rate product may be out of their hands for some landlords as lenders tend to stress over a five-year fixed more favourably.
“Landlords as a result will be at the mercy of their existing lender and what product transfer rates are on offer.”
Luke Thompson, a financial adviser at PAB Wealth, says: “I think with rates as high as they are most landlords should think about tracker rate mortgages when their current deals end.
“With potential falls in interest rates in the future, the flexibility of a tracker rate mortgage would enable them to move to a fixed rate mortgage with no early repayment charges in the future if the rates do drop.”
