When Interest Rates Rise, is There Any Protection For a Buy to Let Landlord?-buy to let mortgage

May 19, 2010 - PRLog -- As a buy to let landlord in the UK you may have mortgages on some or all of your properties.

It's not uncommon for property landlords to opt for buy to let interest only mortgages to maximize their tax position and given rental income tends to be a regular amount, buy to let fixed rate mortgages are also popular.

Historically a buy to let landlord would probably have remortgaged at the end of a buy to let fixed mortgage onto another similar deal.

Many buy to let mortgage holders have indeed reached the end of their preferential interest rate deal recently but have found that in the current financial climate re-mortgaging to a new buy to let fixed deal is not always possible.

Property landlords are no doubt keeping an eye on base rate predictions and with limited re-mortgage choices many are concerned as to what the future has in store.

Going back only a couple of years the buy to let LTV was more generous than today with buy to let landlords able to borrow up to 85% of the value of their rental property whereas the maximum buy to let LTV is now only 75%.

Whilst many property landlords enjoy the security a buy to let fixed rate mortgage brings, many of them are no doubt currently enjoying lower monthly mortgage payments especially if their mortgage has reverted to somewhere in the region of 2% above Bank of England base rate.

If this is you, what should you do next?

The first step would be to talk to an experienced financial mortgage advisor to review your options. For mortgage brokers to help it's advisable to have a clear picture of your portfolio in terms of how much rental income each property generates, the outstanding mortgage balance on each property and an up to date idea of the current value of each property.

This information will allow your mortgage broker to assess your options with you. It may be that remortgaging onto a new buy to let fixed rate mortgage is possible and the decision then is just whether you want to take up this option or continue to take advantage of the current low interest rate.

The question is, how much would interest rates have to rise by before it became impossible for you to maintain your mortgage payments?

The interest rate on buy to let fixed rate mortgages is currently around 5% with establishment costs of anything between 2% and 3.5% so it's not a cheap solution, but it will give you piece of mind that when interest rates rise, you are protected at least during your fixed rate period.

It may be that a review with your mortgage broker to highlight your options shows that a re-mortgage is not an option.

If your buy to let LTV is greater than 75% you will be very unlikely to find a lender to offer a mortgage.

If this is the case but you are still worried about the effects of an interest rate rise, there is another option.

There is an insurance policy available which can protect mortgage payments from rising interest rates without the need to re-mortgage.

If the Bank of England base rate rises, causing mortgage payments to increase, this insurance policy will pay out to cover some of the increase for up to two years.

This has been a very welcomed option for many buy to let landlords offering stability where previously a high degree of uncertainty was forecast.

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