Buy to Let Mortgages, the SVR and Follow On Mortgage Rates

Landlords (or indeed anyone buying a property) face ever rising costs to buy and sell property.

On the buying side, stamp duty and the now ubiquitous “mortgage arrangement fee” are both much higher than in days gone by and local councils also charge more for searches. On the selling side, estate agency fees continue to rise. On both buying and selling, solicitors’ conveyancing fees have increased a lot too.

With these rising costs in mind – and in order to “amortise” them over time – most house buyers now move house less often than in the past. And, for the same reasons, most serious investors in buy to let (as opposed to developers) are “in it for the long term” too and – mindful of entry and exit costs – tend not to buy and sell houses too often.

Also, even if you are not planning to sell a property, the rising cost of the mortgage arrangement fee also makes it more costly to switch mortgages.

Reversionary Mortgage Rate

So, as this is the case, I think there is a case for press articles on mortgage rates to tell readers to at least look at what the “follow on” or “reversionary” mortgage rate will be at the end of the discounted or fixed rate period – because they are not all the same.

Often the short term discounted rate looks great, but the follow on rate at the end of the discounted rate period is very high.

What’s the Follow On Rate?

The trouble is most pieces in the press fail to mention the follow on rate at all.

Now I appreciate that all journalists are confined by a word limit imposed by the editor, but I think all articles on mortgage rates should at least mention that landlords (or indeed any house buyer) should check what the follow on reversionary rate is or, if the follow on rate is the SVR, to enquire if the Standard Variable Rate (SVR) is actually linked to anything specific.

Is the SVR fixed amount at some set amount above BOE base rate, is it linked to LIBOR or is it the worst of all scenarios (for the borrower) whatever the lender feels like charging at any point in time?

Naturally, where the follow on rate is very high, this fact tends to get left out of the press releases the mortgage companies put out to promote their mortgage rates.

Great Mortgages

Professional landlords like me look always look at the follow on rate.

As an example, I have two lifetime tracker mortgages (one pegged at 0.69% and the other at 0.89% over Bank of England Base Rate.) I took out both in the good old days, before the credit crunch hit in 2008.

With these mortgage loans, I had the foresight, at the time to look beyond what was a mediocre introductory rate to see that the long term follow on rate was actually a winner.

The lender is a high street bank – their loss, my gain!

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