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I'm about to remortgage my first BTL
As it stands Ill make £200 / month at about 3% interest rate Interest only
If / When the rates are 6% Ill make £50 / month !
Surely this is the same for everyone so what happens in this situation is there something i am missing?
Seems worrying that every LL in the country with interest only payments would be put out of business with a 3% rise?
Thats right and many hope to gain by capital appreciation on the asset over time. Over last few years this has been a big winner for most but times are changing.
Every business has its risks ,interest rates have been historically low for years and it won't go on for ever. If interest rates do begin to rise then millions of people are in for a rough time. During the later years of the last century mortgage rates peaked at 15% for a short time.
Tell me about it. I had a 50k mortgage and was paying £1500 per month. - like many others at that time. OK we had the benefit of high inflation etc but these newbies have no idea what can happen when economies get back to normal conditions. Blood all over the streets!
Sounds like you were paying closer to 20% interest on a £50k loan over 25 yrs - whereas the SVR peaked in 1990 ish at 15.4% then fell steadily every few months.
In those days they were straight forward repayment mortgages linked to base rates. Non of these fancy fixed rates etc. today.Also at that time you had to wait for mortgage funds as and when available from the building societies.Anyway as I said we had high inflation and my pay was going up accordingly.My generation had the benefit of high inflation which drove up property prices.Over the last few years people have been paying a real rate if interest for the first time in many years.
"Surely this is the same for everyone so what happens in this situation is there something i am missing?"
Not all landlords have a mortgage, I believe its around 50%. Of those that do have a mortgage, many are not highly leveraged. It is only the highly leveraged landlords that will be adversely affected by interest rate rises, although many of these will be protected by long term fixed rates.
Kent Reliance B Soc say only 1/3rd are mortgaged
This is where a healthy 8% yield should be sought, then maybe 75% ltv will be safe.
but at lower yields you should be looking more at 50% ltv.
For me 8% yield and 10% minimum IR break even figure, then you should be able to ride any waves over a longer timeframe until capital appreciation kicks in 20-30 years later.
i would base any investments on a 5% interest rate, any reduction is a bonus.
You young kids have no idea: Had a (for then..) big mortgage, 2nd house I owned: Started at 10% BoE interest rates hit 17% within 18 months..( Thatcher.., 15 Nov 79). See.
- think we lived on mashed spuds.... It was "painful".
Make some more plans to cover higher rates... It could get very painful....
- goes back to count his 6 benefits - State pension, winter fuel allowance, £10 Xmas bonus, 'bus pass, free eye tests, free prescriptions: Thank you you lovely taxpayers you...