The big BTL mortgage dilemma: to fix or not to fix

Category: Mortgages
Date: 10/14/2011

Rates are low – but when will they rise? That's the big question. It's a question that turns into a dilemma for anybody with a mortgage.

If you've got a mortgage for buy-to-let investment, deciding on a fixed or variable rate could end up being a decision that costs or saves £100s or even £1,000s each month.

While landlords with a BTL mortgage could still save money with a low tracker rate mortgage at present, they could get stung later if rates rise.

On the other hand, many landlords on fixed rate BTL mortgages are ruing the missed opportunity that the low rates since 2009 have presented in the form of cheaper variable rate mortgage payments.

Can you afford to take a chance?

Both fixed and variable rate BTL mortgages carry risks, and both also offer the opportunity to save money. However, only fixed rates offer the certainty that you will pay a set amount for a set term.

Capped rates offer a ceiling to how much you could pay, but this type of rate is hard to find and frequently unavailable (at the time of writing there are only 6 capped rate BTL mortgages available, all offered by Coventry BS and their broker arm, Godiva Mortgages).

Variable rates – trackers, discounted, standard variable rate – can be cheaper than the best fixed or capped mortgages for buy-to-let at present. That means lower mortgage payments, and so more profit for your back pocket, or to re-invest.

But what if rates go up?

If you opt for a variable rate BTL mortgage, you're going to need to be satisfied that you can meet payments if rates go up. And remember there's no ceiling on what they could go up to – it could be 1% extra, it could be 3%.

Don't simply select a mortgage because it's the cheapest, think about interest rates – what do you think will happen?

The fixed and variable mortgage dilemma – whether on your own home or on a buy-to-let – boils down to this:

Which risk bothers you most?

• Paying more than the going market rate because you're locked in to a fixed rate.
• Paying more than had you gone for a fixed rate, because rates have increased far above the rate the mortgage started at.

Selection of the best buy-to-let fixed rates

YOUR BTL PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. There will be other lending criteria applicable to these mortgages. The information given is intended as a guide only. Information correct as of 14.10.11.

Selection of the best buy-to-let variable rates

	APR	Details
3.59% variable to 30.9.13 (tracks base rate + 3.09%) Reverting to 4.99%	5.0%	Loan-to-value: 60% Redemption: To 30.9.13: 4% of mortgage advance Product fees: Arrangement fee £999 Incentives: Free valuation. Remortgages free legal fees Rental requirements: Rental income must be a minimum of 125% of mortgage interest (calculated using rate of 4.99%)
3.89% variable for 2yrs (tracks base rate + 3.39%) Reverting to 4.95%	5.0%	Loan-to-value: 70% Redemption: 1st 2 years: 4% of outstanding balance Product fees: Arrangement fee £245, Completion fee £995 Incentives: Remortgages - free valuation and legal fees Rental requirements: Rental income must be a minimum of 125% of mortgage interest (calculated using rate of 6%)
3.48% variable for term (tracks lender's base rate + 2.98%)	3.8%	Loan-to-value: 60% Redemption: 1st 3 years: 6 months' mortgage interest Product fees: Arrangement fee £1,999 Incentives: None Rental requirements: Rental income must be a minimum of 125% of mortgage interest (calculated using rate of 4.99%)
3.85% discounted variable for term(discount of 1.64%, rate can not go lower than 3.50%)	4.0%	Loan-to-value: 70% Redemption: None Product fees: Booking fee £95, Arrangement fee £800 Incentives: Refunded valuation fee (max £300) Rental requirements: Rental income must be a minimum of 130% of mortgage interest (calculated using rate of 6%)
3.88% variable for term (tracks base rate + 3.38%)	4.1%	Loan-to-value: 75% Redemption: 1st year: 1% of mortgage advance Product fees: Arrangement fee - £1,895 (up to £500K loan), £3,195 (loan between £500K and £1m), 0.5% of mortgage loan (loan over £1m) Incentives: Remortgages free legal fees (England and Wales only) Rental requirements: Rental income must be a minimum of 100% of mortgage interest (calculated at 8.88%)

YOUR BTL PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. There will be other lending criteria applicable to these mortgages. The information given is intended as a guide only. Information correct as of 14.10.11.

A word about rental requirements

Most lenders require that the rental value of your property covers the mortgage interest by a certain amount – typically 125% of the mortgage interest.

The interest rate used to calculate this may well be different to the mortgage rate you pay in order to make sure that you would still be able to afford the mortgage if rates were higher.

The lender will have other things to take into account before deciding whether to lend to you. A mortgage broker can help you navigate the requirements of different mortgage lenders to find the best BTL mortgage for you.

What next?

Compare the best BTL mortgages
Speak to a BTL mortgage broker

Find the best mortgage for you - Compare buy-to-let mortgages

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.