Better Off Opting Out of a Fixed Rate Mortgage For Investment Properties?written by Bella Palmer
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.
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