Landlords, you need to think very carefully about what type of mortgage you get next. Mortgage brokers also need to be very careful on what mortgages they recommend.
If you take out a 2-year mortgage now that is based on 125% cover and at 75% LTV you could very well find yourself in a position where you can’t remortgage in 2 years time. The reason for this is that some lenders have already moved to 145% rental cover and others are likely to follow. In 2 years time, you could find getting a mortgage product that offers 125% rental hard to come by.
This means you could be stuck on the standard variable rate which these days is almost double current product offers.
The only possible exception to this is a longer term rate of 5 year or more as this gives you more time to plan. The key word here is plan, as you need to make sure that over that period you are in a position to take on a 145% rental cover loan.
The two main ways to do this are to either keep increasing rent each year or pay down some of the loan so that you move into 125% cover territory.
I personally am in this situation with a property I bought in June last year on a 2 year fix at 125%. Given the shorter time span I have to deal with, I will be unable to raise the rent significantly to counter a 145% cover mortgage or have enough funds to pay down the loan to a similar extent. Therefore my only option at this stage really is to look at a 5-year fix at 125% and then plan my way out of it.
The good news for those taking out mortgages now, you can plan and I would seriously recommend planning for having to move onto 145% mortgage when you come out of any product you secure.
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