Fix Interest Rates in UK Buy to Let ?

I am 30 months into a 60 month interest only agrreemnt for 2 buy to let apartments in East midlands UK. Loan in sterling.
Am paying 3% variable right now. Can fix at 3.93% for 3 yaers. To fix will cost me an extra £125 per month but I can still clear £100 per month profit - allowing for 2 months voids per annum and all fees & charges. I will have to get real in 30 months time and start paying back the capital.
Any advice on this market that I really regret getting into ? I took a lot of hits in the first 26 months of this. Its only now that rates have come down that I am getting a fraction of relief and I want to book it in for now and revert in 30 months time and worry about the repayment element at that time.

I estiamte the properties are worth about 40% less than I paid. Any help put there ?

maybe I could put this better.
I am thinking of paying 125 per month extra to fix for 3 years.
But I need to build up some reserves because I will be on repayment in another 30 months.
Properties are worth 40% less than what I paid.
Any good ideas out there ?

Greeneman

Not too familiar with UK rates except to note that both your options seem better than what I have atm.

It's hard to imagine rates going up anytime over the next three years. However your LTV is probably in poor shape (what was it starting out) if things did change which would reduce your options.

I wouldn't be in hurry to pay 4.5k to protect against rising interest rates in this environment, I'd try and get a good regular savers interest rate and if necessary use savings to improve LTV for attracting good rates in a few years.

I think rates have further to go down in the UK and rises are two years away so I would not got for fixed just yet.

Is it currently a tracker variable?

RugbyBoy said:

I think rates have further to go down in the UK and rises are two years away so I would not got for fixed just yet.

Is it currently a tracker variable?

Click to expand...

Rates may indeed go lower but banks have suddenly become prudent again so the base rate is of little relevance to the mortgage rate that you will be charged when you are deep in negative equity.

The OP ought to test the remortgage market to see what options are available. I would try and fix soon because there is no guarantee that the mortgage drought will not continue and next time you look to remortgage these properties their prices will probably have fallen further.

Thanks for your thoughts. Yes I am on a tracker, Libor plus 1.45% margin. So curently I am on 3%. My LTV was 90% when I started 30 months ago and is now 150%. I think fixing makes sense at 3.93% because I am afraid the Libor may become seperated from the Bank of England rate with the turmoil in financial markets.

Things are fine right now while net rent exceeds interest but I have a dose of reality coming in 30 months when I need to start repaying the loan.

I have loans of 160K on flats worth 110K. And even at todays low interest rates I can only make about 2K profit per annum when expenses and voids are taken into account.

What would you do ?

Greeneman

I do not know enough about your financial situation to really help. I take it that you cannot sell because you cannot afford to repay the mortgage balance?

In that case you have to minimise your mortgage payments whilst maximising rental income (bloody obvious yes I know).

I am surprised that you have been offered such a good fixed rate given how much negative equity you are in - I would take it and hope that economic and financial circumstances will have improved by the time you need to remortgage again.

I am surprised that you have been offered such a good fixed rate given how much negative equity you are in - I would take it and hope that economic and financial circumstances will have improved by the time you need to remortgage again.[/quote]

yes i am surprised at this too ! do you mind sharing who the lender is ?

RE Rate: you must remember I am making my monthly interest only payments. I negotiated first 60 months interest only and then go on to repayment. Interest rate is libor plus 1.45. Since I am honouring the agreemnt I expect the bank have no need to review LTV or change the pricing.
I can handle the interest costs but not the repayments when they become due.
If I try to stay on interest only after 60 months I presume its a new agreeemnt with a new valuation required. That will certainly scare them. Unless there is a major uplift in UK midlands in next 30 months and I certainly cannot see that.

Greeneman

I assume by the rates you quote you are with IIB or KBC as now known.

You should check the rate you are currently paying. I believe it will be closer to 3.5%. Libor (3 Monthly) as of last Friday way 2.071%. Libor is not falling in line with BOE interest rate reductions. So I believe the difference between your current variable rate and the 3 year fixed is very little.

One of the pluses about keeping at least some portion of the loan variable is you can make lump sum payments this can be attractive at the moment while sterling is weak.

Good luck and hope your investments recover.