Which BTL mortgage?

Lara1

Hi. If you had to pick between the following BTL mortgages, which would you go for?

a) 5.99% fixed for 5 years (1000 arrangement fee)
b) 2 year tracker at 4.3% above BR (2250 arrangement fee)

I am leaning towards a) as I think rates seem likely to be up 1.5% in the next couple of years. Obviously will be overpaying in the short-term but then the fee is less than half of b).

Just a straw poll question - interested in other people's thoughts if you had to choose.

thanks

GMS

Lara1 wrote: »

Hi. If you had to pick between the following BTL mortgages, which would you go for?

a) 5.99% fixed for 5 years (1000 arrangement fee)
b) 2 year tracker at 4.3% above BR (2250 arrangement fee)

I am leaning towards a) as I think rates seem likely to be up 1.5% in the next couple of years. Obviously will be overpaying in the short-term but then the fee is less than half of b).

Just a straw poll question - interested in other people's thoughts if you had to choose.

thanks

The arrangement fee on the tracker works out at £52 per month higher (taking off the £1000 fee on the fixed) over the 2 years.

What is the difference in payments per month?

Also remember the tracker is for 2 years and the fixed for 5.

Personally I think the fixed by a mile, assuming it fits for rental criteria etc.

Lara1

Hi, thanks for your reply.

The mortgage is for 135k. Payments are 678 for the fixed vs 550 for the tracker. So a difference of 128. If BR goes up by 0.5% the difference will be 71. And a BR increase of 1% will leave a diff of 14.
These are interest-only figures, with the arrangement fees added to the mortgage. Are they the right figures to use to calc the payment difference?

If so, is it right to say I'm effectively worse off until the BR increases by 1%? Obviously what I'm buying myself here is certainty on my monthly payments and protection if the rates shoot up higher than this.

Also, having never remortgaged to a new lender - are the following fees standard?
Valuation fee - £430.00
Telegraphic transfer fee - £ 35.00
Mortgage Account fee - £ 275.00
Legal fees - £ 117.50

Many thanks

GMS

You cannot really compare a 2 year tracker with a 5 year fixed.

2 year tracker vs a 2 year fixed would compare but not 2 on 5.

After the 2 year tracker runs out what will payments revert to? Could be another tracker or lender SVR which could be any number by then.

Spending £2250 on an arrangement fee in my opinion would be madness when you are not protecting payments. £2250 works out at £93.75 per month for an arrangement fee.

At least the 5 year fixed £1000 arrangement fee is reasonable at £16.66 per month.

Without knowing your circumstances it is difficult to say, other than the 5 year fixed would be my personal choice.

May well be other deals available for you. Have a chat with a broker. Seems strange to have 2 vastly different options of 2 yr tracker or 5 yr fixed.

Fees wise it varies from lender to lender but they do not seem abnormal, but the legal fees will be much more than that. The £117.50 is an illustrative figure only.

luckyfool

What ltv are these products? There are 75% BTL products available just now at 3.75% for a tracker or 4.25% for a fixed (both 2 yrs), and 4.99% for a 4 yr fixed. All are in the process of being withdrawn, but unless you are getting 80% there are much better deals out there than what you have indicated.

Lara1

Thanks folks. So a bit more info: I am using a broker but my circumstances aren't that favourable as I'm an IT contractor with only a few months of earnings to prove. I think this may be the reason he didn't offer any better deals.

@luckyfool : My LTV is 75%. Who are those deals with?
I looked at some price comparison sites and found it tricky to see deals that are both BTL and remortgage (I am probably missing something here). If I can find an example of a better deal I will take it to the broker and ask if it's available to me with my circumstances.

@GMS : Understood re the deals being very different... the conversation with the broker initially was focussed around getting me the cheapest rate in the short term (2 years). Then we started thinking about fixed as an option. I didn't fancy the 2 year fixes as I don't think rates are going to go very far in that window.
However I do think it might be worth taking advantage of today's rates on the chance that BR goes up by a few % by years 3 to 5.

So the two I lised were the narrowed down options - my basic question was whether to fix or not, given the difference in arrangement fees and what might happen to rates. (Yep, I know no-one has that crystal ball but was interested in other people's thoughts on it).

Gorgeous_George

Lara1 wrote: »

Hi. If you had to pick between the following BTL mortgages, which would you go for?

a) 5.99% fixed for 5 years (1000 arrangement fee)
b) 2 year tracker at 4.3% above BR (2250 arrangement fee)

I'd choose the 5 year fixed for security and planning purposes. The 2 year tracker is cheaper if rates don't rise too much but that is a risk.

For me, a two year tracker is just a gimmick. Rates are unlikely to move (significantly) over two years. That said, when I looked for a BTL mortgage earlier this year, I was offered 5.2% fixed for 2 years with a £750 fee. In the end, I was gazumped and walked away.

GG

Lynsey

Not too sure who you are thinking of going through, but The Mortgage Works don't take income into account. As long as the rental value is a minimum of 125% and the survey etc. goes ok your income won't be an issue. You will only have access to certain deals if you are a 1st time landlord.
http://www.themortgageworks.co.uk/content/products/buy-to-let-mortgages.aspx
Just select your criteria from the drop-down boxes.

Lynsey

luckyfool

Lynsey,

Sounds like these deals are TMW. The products I mentioned at 75% are BM Solutions (and are being pulled Friday), but they would have a minimum income of £25k and require it to be provable. i.e. Unless the OP can show that income, her partner being newly self employed would not be able to use their income to satisfy it.

Over a 2 yr period I think rates are likely to be pretty stable (averaging maybe 0.25-0.5% higher than they are currently at the most, however thats just an educated guess. Who knows what BTL deals would be available when you came off that 2 yr tracker rate, unless you have a pretty speculative attitude to risk if I was choosing between those two products I would go with the 5 yr fixed rate.

Lara1

Thanks very much for the replies.

I checked out TMW, they can offer me a 5 year fix at 5.79% but with a hefty arrangement fee of 4725. So I'm better off with the fix I have already (5.99%, 999 arrange fee).

The deals I listed originally are BM I think, I will ask about the 4 year fix at 4.99% mentioned by luckyfool. Seems like it's between that one and the 5 year fix at 5.99%.
I agree with your feeling re the rates not going too far in the short term - so the tracker would just be to give me a low rate in the short term. But I'd then probably be looking at remortgaging again after two years - and as you say, we don't know what the rates will be like then.