If your buy-to-let mortgage deal is coming up for renewal you might be in a bit of a quandary, given current uncertainty over interest rates and mortgage rates. You are most likely considering fixing rather than opting for a tracker, but should you go for a two-year deal or look longer-term for a five-year fix?
We can’t decide for you and mortgage and financial advice should always be given by an expert. However, we can look at what is happening in the market to provide some context.
Interest rates
At the beginning of August, the Bank of England cut interest rates to 5% in the first cut since 2020, taking the rate down from its 16-year high of 5.25%. The move had been long awaited. It was followed a couple of weeks later by the news that the inflation rate had increased slightly to 2.2% for July. The next base rate announcement from the Bank of England is due on 19 September. However, the bank’s Monetary Policy Committee has pledged a cautious path ahead.
This means that further radical cuts to the base rate are unlikely, especially given the warnings from the government that its Autumn Statement, due Wednesday 30 October, is unlikely to make for pleasant reading. One more cut is expected by the end of the year to take it to 4.75%, with forecasts of a fall to 4% by the end of 2025.
Mortgage rates
The initial interest rate cut prompted mortgage lenders to begin cutting rates, however, falling below 4% over the last six weeks for general mortgages, for example. Buy-to-let deals have been less responsive. Earlier this year average fixed rate deals for buy-to-let residential mortgages were 5.95% for a two-year deal and 5.91% for five years.
This was significantly up from 2021 year-end averages of 2.9% for a two-year fix and 3.19% for five years. Rates currently stand at 5.36% for two-year fixes and 5.34% for five years so repayments will be significantly higher. The fact that many landlords finance on interest-only deals also means that monthly payments increase more as rates change.
With opinion largely split on what the next interest rate announcement will be, there is a general consensus amongst mortgage brokers that although mortgage rate cuts will continue it will be at a slower rate than previously. Deciding on a five-year fix is a gamble between cuts likely to come in the next two years and where they could be longer-term.
Uncertainty in the market
Landlords may also be wary of a five-year commitment to the rental market. Many are concerned at the implications of the new Renters’ Rights Bill which proposes several changes, many of which are seen to be in favour of tenants rather than landlords. This may mean you are reconsidering whether you want to keep renting or are planning to sell up, with considerations around future returns to take into account. More details on the changes proposed in the bill will be revealed by the government in October.
Considering the future
Landlords have many decisions to make as they consider their future but on a positive note rates are below their earlier peaks and future trends appear to be downward. Whether to fix for five years or take a gamble on lower rates being available within two will be at the forefront of landlord’s minds as they consider their future. Getting the right financial advice to decide on the best path for you will be essential.
For more information on how Kings Group can assist you on your letting journey, please contact one of our branches in Essex, London or Hertfordshire today. We also offer a free and instant online valuation to give you an idea of how much your home could be worth on the current market.
