Better Off Opting Out of a Fixed Rate Mortgage For Investment Properties?
We’ve recently covered the especially attractive
However, while there are planning advantages for landlords who lock in a fixed rate, there is also a possibility that their best approach to reducing monthly mortgage repayments could be to take the contrarian decision to go for a variable rate mortgage instead. With the Bank of England rate still at 0.75%, a recent study by the Yorkshire building society finds that interest rates will need to rise by another 1% before the best fixed rate deals currently on offer become more attractive than the variable rate alternative.
With the UK economy likely to undergo a period of uncertainty whichever way the ongoing Brexit negotiations finally go, there is a strong argument that the Bank of England is unlikely to
The Yorkshire study compares mortgage interest payments on its best variable deal, a two-year discounted 1.17%, with how they might rise with interest rates. Right now, monthly payments on a £150,000 mortgage would be £576.93. A rise in the Bank of England’s interest rate to 1%, by 0.25%, would increase this to £594.28. But the variable rate would need to reach 2.17%, on the basis of a BoE base rate of 1.75%, before payments rose above those of the best fixed rate deal on offer, which is a 2.16%.
Another advantage of variable rate tracker mortgages is that they usually allow holders to switch onto a fixed rate product at a later date without having to pay an early repayment charge. So, for owners of investment properties who are not convinced that interest rates will rise by a whole 1% over the next couple of years, perhaps variable options are still worth considering.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.