Hello Readers,
As we (hopefully) come up to a bank of England rate drop in the next few months, many of us will be looking forward with a hopeful outlook that mortgage rates will start to decline.
Remember how we saw rates in excess of 6% and whilst they have dropped somewhat, they’re still a long way from where they were.
The Lloyds Bank CEO Charlie Nunn has recently commented that there’s no scenario where he sees rates dropping to the 1.5% – 2.5% rates we have previously seen. Here’s Nunn’s quote to Sky News:
“The expectation that markets have is that interest rates won’t get below 3.5% and that means that the new normal for mortgages will be in that 3.5% and 4.5% range.
There is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.
In terms of the impact on the broader consumer in the UK, it’ll take longer to feed through”
Ok, so I understand that limited company rates are higher than personal rates and what we have seen in addition to higher rates has been an increase in lender fees to around the 5% mark.
The graph below shows where we have been and where we currently are. One disclaimer on this graph is that it’s average rates across a range of fixed terms and I know people who have got their LTD company BTL mortgage for around the 4.75% rate. Regardless of this, it really does paint a strong picture!
According to Moneyfacts, we see how rates and lender fees are coming down slowly. Check out these rates below:
What mortgages sticking at a higher rate means for landlords and tenants is that mortgage repayments will remain higher, pushing up costs and the need to have higher interest rates. I also anticipate that 70% – 75% will be the firm norm when looking at BTL lending as opposed to reaching up to 80%.
With the average terraced property in Medway selling for £281,365, let’s have a look at the difference in repayments on a 75% LTV mortgage – it’s a big difference between 3.5% and 4.5%:
| Rate | Monthly Repayment |
| 3.5% | £616 |
| 3.75% | £660 |
| 4% | £703 |
| 4.25% | £747 |
| 4.5% | £791 |
Something we might see is landlords reducing their LTV to boost profits, however releasing funds for investment elsewhere is always an important consideration, so all needs to be in balance!
I’ll be keeping an eye out as the political, economic climate continues to evolve and keep you appraised. Hopefully this article goes some way to helping your planning the management and expansion of your portfolio!
Hasan
