Interest rates on BTL mortgage shooting up and bankrupting landlords

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    Interest rates on BTL mortgage shooting up and bankrupting landlords

    Hi, without much thought in the past have bought 2 BTL properties, rented out - all good, a nice side hustle and cushion in case of work issues but not gonna replace the day job or make me rich; the coronavirus pandemic has made me think that I actually find my freelance job stressful (alot of my work was cancelled but is slowly coming back and likely will have work freelance or salaried in the future if I want it) and have found not working helped alot of my issues such as poor sleep, anxiety, etc.. Thinking of jacking it all in and going all in on property (or at least partially); main niggling concern has been if interest rates shoot up to crazy levels in the past (heard of 17% or similar in 90s) and being forced to liquid all my assets to pay mortgage off (which will be a nightmare) - what do the wise ones think ?
    I've bought the properties normally (not limited company) as this was before the tax relief changes came in - I heard only do limited company if I'm planning to buy 4 or more properties in it (not including the 2 I already own - which cost is prohibitive of moving over), is that right wise ones ??
    Thanks and hope all are well in this pandemic !

    #2
    By the way I'm really a Newbie landlord anymore

    Comment


      #3
      Welcome to the Forum
      You are right to always recall what interest rates used to be and indeed interest rates did rise to the levels you have mentioned, however at that time lending was primarily the preserve of Building Societies with only a moderate amount being advanced by the Clearing Banks. Lending was controlled to a large extent by the Building Society Commission , a very mild version of today’s Financial Conduct Authority.

      The pronouncements of the governments created a Wild West climate in mortgage lending given that Double Tax Relief could be enjoyed which in turn incentivised levels of borrowing without full consideration to the ability of borrowers to repay should the economic climate adversely change so when the Government at the time was hit by a run on sterling it had no option but to significantly increase interest rates which forced many young couples to hand back the keys to their houses in the mistaken belief that this would absolve them from any future financial liability for the mortgage. This in turn had a disastrous effect on house values as the number of repossessions reached historic highs. That was the past and today mortgage lending is an integral part of controls exercised by the BoE and the FCA and lenders are obliged to be more diligent in the income to loan assessments for regulated mortgages and where BtL loans are concerned , an assessment put in place for a “ What if basis” interest rates were to be at say 7% and the impact it might have on the ability of borrowers to pay even though in the main this category of lending is funded on an Interest Only basis whereas regulated loans are predominantly Capital & Interest.

      So after the historic background to rates of 17% it is fair to say that the BofE would always be mindful of the ramifications of imprudent lending and its adverse effect on inflation and by default the associated risks of marked increase in interest rates and any actions by lenders to circumvent the controls would quickly be stamped upon.

      Apart from the current risks of negative interest rates it is reasonable to say that controls are in place to ensure rates never reach the historic heights experienced in the latter part of the 20th Century but I do not believe that rates will remain at their present levels long term and not until the serious financial ramifications of the Corvid 19 have been dealt with will there be any significant changes to borrowing rates unless inflation was seen to be increasing beyond what the BoE and government was an unsustainable level because of price rises and above average pay increases.

      If you decide to commit long term to property investment, accept that what goes up can always go down and a profit only materialises when it is sold so emphasis must be focused on property providing an adequate level of income which not only pays the associated running costs including mortgage but to provide for contingency reserves for when voids or emergency repairs occur and then finally give you a reasonable surplus to enjoy a fair lifestyle. In the current market I doubt that this would be practicable until you have built a reasonable property portfolio so unfortunately giving up your Freelance work may not be a viable option.

      If you are considering using a Limited Company as the vehicle to buy and hold the properties please speak with a good accountant who is well versed in the property sector in order to know the plus and minuses of such activity.

      Apology for the lengthy response but your musings prompted me to detail the historic mistakes that prompted such high rates and why a repeat of such events are very unlikely going forward and if it did we are all in the soup.

      Comment


        #4
        The government has a vested interest in keeping rates low so it has a chance of paying back the enormous debt we're accruing. I think it's more likely interest rates will remain low. What would concern me more is that you have only two properties so not much spreading of risk. If one tenant stops paying, it takes you 9 months to get them out and they've trashed the house you've lost 50% of your income plus costs possibly running into thousands. Would part time work be a safer compromise?

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          #5
          Hi Newbie, with regards to stress and worry there is a fantastic spread sheet out there that takes 10 mins to fill in and runs your portfolio against all the last major recessions. A key factor to holding on is cash holding or access to cash. Think it was on Rob Dix site. If it gives you a good result you can maybe sleep a little better :-). If poor result you can adapt.

          Comment


            #6
            Originally posted by Newbielandlord2015 View Post
            ............. if interest rates shoot up to crazy levels in the past (heard of 17% or similar in 90s).............
            17% was in 1979 during Thatcher's 1st government- yes, conservatives , 70's, not the 90's.

            Yes, I had a - for then - large mortgage, my 2nd, and even with two good salaries it was - err.. "interesting"... Had either myself or the 1st-wife-we-don;t talk about lost job/family crisis whatever there'd no doubt have been repo or bankruptcy.

            See historical interest rate here..

            https://www.bankofengland.co.uk/boea.../Bank-Rate.asp
            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

            Comment


              #7
              Originally posted by Newbielandlord2015 View Post
              Interest rates on BTL mortgage shooting up and bankrupting landlords
              From the title of this thread I thought you were reporting that interest rates on BTL mortgages were shooting up and bankrupting landlords. Glad to see that this is not the case.
              There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

              Comment


                #8
                As the saying goes “ Don’t panic Mr Mainwaring”

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                  #9
                  The problem is , the rates can go as low as they like BUT if the lenders don't pass them on......

                  Comment


                    #10
                    Originally posted by blinko View Post
                    The problem is , the rates can go as low as they like BUT if the lenders don't pass them on......
                    This is only a problem if you have a SVR mortgage.

                    Comment


                      #11
                      Remember that so far as banks and especially Building Societies are concerned , they have a reliance upon savers for the ability to lend to homebuyers and in many instances BtL borrowers and therefore a fair rate of interest must be paid over and above the operational costs therefore from a lending perspective there is a finite bottom which normal lending can be undertaken.
                      These are indeed extraordinary times within which we live and conduct our affairs so only time will tell what the outcome will be.

                      Comment


                        #12
                        Originally posted by loanarranger View Post
                        Remember that so far as banks and especially Building Societies are concerned , they have a reliance upon savers for the ability to lend to homebuyers and in many instances BtL borrowers and therefore a fair rate of interest must be paid over and above the operational costs therefore from a lending perspective there is a finite bottom which normal lending can be undertaken.
                        These are indeed extraordinary times within which we live and conduct our affairs so only time will tell what the outcome will be.
                        Right we need to get savings rates down lol

                        Comment


                          #13
                          After Dominic Cummins and Specsave I could laugh if I didn't need a few pennies on my meagre savings

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