Given the rate has risen by 0.5% to now 1.75%, clients who have mortgage cases going through the pipeline have suffered. I use the word suffered lightly. Though the rates have gone up, therefore their cost of doing the property business have increased, they are still meeting their objectives. One client who had a £2M mortgage going through, at a then special rate of 4.99% had his rate jump to 5.99%. This means an increase in payments of around £200K over the decade he is tied to the product. To be fair he didn’t flinch, he took it on the nose and moved on, knowing he could put this money to hard work which will earn him even more.
In contrast to this, we have a landlord who is purchasing her second BTL property, borrowing a 5 year fixed. This product was pulled without warning, to be replaced with higher terms. Instead of looking at the bigger picture the couple focused on the increased monthly payments. Their decision will be to go for a 2 year fixed which is slightly cheaper, or reject the property. It is interesting to contrast the two different mindsets. One concentrates on the increase in pennies every month, the other on moving on and focusing on the deal, rather than in the slight increase in expenditure. I believe given 5 years’ time looking back at this instance, it will have very little material effect in comparison to the increase in capital value.
It will be no surprise to note the £2M client has hundreds of BTL properties in the background, and the other client has only one.
Is it the mindset which leads to the increased asset base? Or is it the large asset base which allows one to have the luxury of a more aloof mindset?
I believe the former, meaning the mindset comes first. In fact, the £2M client started from humble beginnings.
According to figures, 40% of mortgages will be coming up for renewal this year; this means many borrowers will face a reality check from the honeymoon period they have been living in.
The base rate is still low at 1.75%, but there is the anticipation of future rate rises which have now become incorporated into fixed rate products.
As these hiked up rates start to kick in, the first to suffer will be those who are highly leveraged. If this is likely to be you it is better to take a hard look at your situation now, and deal with it, rather than being forced to deal with it via a receiver.
This situation will also bring deals to the surface; troublesome times often do. One doesn’t know who is swimming naked, until the tide pulls in.