Rate dilemma: To fix or not to fix
With interest rates on the rise, many investors with borrowings face the dilemma of whether or not to fix their mortgage interest rates.
Fixing the rate has in the past acted as a cushion against rising interest rates.
Currently the actual fixed rates available for investors range from two-year fixed at 5.65pc, three-year fixed at 5.8pc and five-year fixed at 6.2pc. These are higher than quoted APR rates in below table and they need to be compared to the cheapest variable rates of 4.2pc.
Interest rates are rising but the "insurance premium" contained in the fixed rate may be too high a price to pay for troubled residential investors, whose rental income falls short of mortgage repayments.
Yields may be improving relative to current property values but for existing residential investors who typically borrowed 75pc of the purchase price, there is little comfort in the circumstances they face with interest rates rising.
Another aspect to be considered is that if they sell the property and redeem the loan within the period of the fixed rate mortgage, they may face penalties, and such penalties may not apply to variable rate mortgages.
Already most of those investors with interest-only mortgages are struggling to meet monthly payments and are now facing the problem of lenders requesting both capital and interest repayments. Some 10,000 Permanent TSB residential mortgage investors find themselves in this predicament.
Michael Dowling is a director at Abacus Finance