ASK524: Are high mortgage rates here to stay? PLUS: Does it make sense to buy now?

0:02Rob B:Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hey everyone, it's Ask Rob and Rob, the show where you get your questions in, predominantly property related. Sometimes you go a little off-piece, but we don't mind that. And we do our very, very best to give you a good answer in return. We've done this over 500 times now, so we're well-versed. But luckily, you always have a lot of questions. And we'll guide you now to the place you can go to ask some more.

0:29Rob D:Yep, it's just one destination, propertyhub.net slash ask. If you go there, you can leave us a question in written form for our Sunday Times column, or you can get yourself on the show and be the envy of all your friends by leaving us a voice note, just like Sam did. Hi, Rob and Rob, it's Sam here.

0:47Rob B:I'm currently on the lookout for my next investment property. But with everything happening globally at the moment, there's a lot of noise around mortgage rates rising. Do you think that this is a short-term spike or do you think that these rates are likely to now stay higher for longer? And ultimately, is this now a good time to invest or do you think I should wait a little while? Sam, thank you for your question. We've recently had a mortgage update podcast in the last few weeks, so I'd go back and listen to that episode. But the short answer for you is yes absolutely do see it as a short-term spike and pretty much every expert in the market feels that way as well what's really interesting is most people associate mortgage with interest rates set by the bank of england but actually it's the swap rates that are more important because that's how they borrow they borrow against whatever the swap rates are and swap rates often do track interest rates but when there's more volatility in the world they can spike so an interest rate might look acceptable from the bank of england but a swap rate may be a lot higher and that's what's happened recently swap rates have gone up and they have been calming down at the time i record this but donald trump is in charge of america so he could have done anything by the time this goes out live but because things have settled a bit those rates have started to come down interestingly when we recorded the podcast a few weeks ago nick had said that those haven't really been passed on to the consumer yet but we are starting to see those rates being chipped a little bit so there's room for movement they're starting to come down very slowly because the swap rates have started to settle there's much further to come and as we get more stability in the market remember the longer a war goes on the more normal it becomes for the markets like the ukraine war for example now here i've hopefully it's all resolved but if it isn't and it kind of goes into a stalemate situation, you'd still expect swap rates to come down.

2:49Rob B:Some people are a bit nervous about investing in this type of market, but what you should be doing is more than compensating for those interest rates being high at the moment by getting yourself a great deal. If you get yourself an extra£5 ,000,£10 ,000,£15 ,000 off in this market, then it's more than covered the increase that you'll be paying for the next few years on your mortgage. so that's the way to view this and it's not just covering your costs you should be looking to do much better than the increased cost because that's the market we're in right now you can do really really good deals something nick said though that i thought was really interesting is that as the interest rates fall if you reserve something today he's repricing the products as people are getting closer to exchange and completion so if in two weeks time after you've reserve the property, you put an offer in and it's been accepted, two weeks later the rates may be a bit better so you switch to that rate.

3:46Rob B:So that's a really interesting tactic that Nick and others are doing in this market as things settle moving the product along to lock in a better rate when available. So it is a short-term thing but it shouldn't hold you back. What you should be doing is pushing for the best deal possible because this is absolutely a deal maker's market right now but there you go sam hopefully that gives you a bit more confidence with where we're at and where we're going but if you want a bit more info go back and listen to that podcast a few weeks ago

4:18Rob D:okay let's have our next question now from matthew hey rob and rob thanks for all your help

4:23Rob B:over the last well more than few years since i've been listening to the podcast you definitely helped me when i was kind of renting rooms in gloucester and looking to turn that into then a family let which it now is so that's been rented out for the last six months it's been going pretty well the numbers aren't great but makes sense because you know the first year i bought property in south wales i was actually in the middle of buying another property in gloucester to rent out to a family again a three bed between 200 and 250k and the yields were pretty good. It was in great condition, but from the survey that came back, there was just too much to do, like too many major things that was going to cost a lot and there was risk associated with it going wrong.

5:12Rob B:So, you know, I tried to renegotiate with the bender, which happens to be the property management company actually that managed my other property in Groster. The seller just didn't want to negotiate, so it didn't make sense to me in the end. so I decided to pull out and since then in the interest rate that I had approved was 5.19 % and if I tried to look for something else it'd be 6 % interest only for a limited company so I feel a bit back to limbo mode again because I was planning on really putting my foot down and buying one two maybe even three properties a year now the money i've got saved up and the money i've got coming from work but when i'm running the numbers the nothing really makes sense i opened up to south wales because the yields are not too bad and the properties are quite cheap but i'm not expecting much back from the appreciation side so i don't think it's a really solid investment and when you take into a 6 % interest rate, it's just not profitable.

6:19Rob B:So what would you do in my position at the moment? Would you just try and really be patient and maybe wait three to six months? I can't find anything that's an amazing deal. So just sit tight, see what happens to property prices and interest rates or yeah, I mean, what would you do?

6:39Rob D:Matthew, first of all, thank you for being such a long time listener. We really appreciate it. And I think this is a really good example of what Rob was just talking about. But in your case, I think you did the right thing by pulling out of that deal because the vendor wasn't willing to negotiate. So if you've gone ahead, you would have had a high mortgage rate and less, of course, like Rob said, that mortgage ended up being repriced throughout the process, which is very possible. But even so, you'd have had a higher mortgage rate and no reward. You wouldn't have been taking advantage of this weakness in the market.

7:08Rob D:So that vendor wasn't willing to negotiate. Others will be. so i would say in terms of your plan switching off would be a big mistake you're going to put your foot down you're going to go for it you've now got an opportunity where lots of people are going to be switching off you are considering switching off but because they are doing that it means you're going to have far less competition and you're going to be able to do stronger deals not every time as you've just seen sometimes people are not in a rush to sell they want their price nothing to be done if that happens move on i would say now in terms of what you're trying to do, it's a time to work harder.

7:43Rob D:It's a time to not switch off, but really go make sure you're doing more viewings, making more inquiries, putting in more offers, because there is this window of opportunity to do really fantastic deals. We're doing them for the type of deals that we do at the scale that we operate at. You can do exactly the same thing in your area for your strategy. And even if you end up with an interest rate that's higher than you want it to be. So let's say we are three, four months into the future and you found something, you're going through the legal process, rates are better than they are now, but still not where they were, say, at the start of the year.

8:17Rob D:So your numbers don't look quite as attractive. Given that you are going for a yield focused strategy, that might seem like a problem for you. And if the deal doesn't stack up at all, then it is. But if it is working, but just not working as well as it was doing, well, okay, but that's temporary. Maybe you're fixing for a couple of years. And so that hits your numbers for those first couple of years. But any discount that you've achieved, that's forever and given that you said you're not going for a growth focused strategy you're just not in that kind of area then you could argue that getting a discount is even more important because if the market's not going to be helping you out you need to do it yourself so you get that discount that's forever and you've got your higher mortgage rate that's potentially just for a couple of years and as a result of getting that discount that then produces the opportunity to pull money out of that property in future and go even faster you don't have to do that but it is an option.

9:08Rob D:So I think, Matthew, you've done exactly the right thing so far. My advice would be keep going. Don't switch off. Take advantage, but don't compromise. Because if you dig deep enough, there will be really great opportunities. So good luck.

9:21Rob B:Good luck indeed. We will be back next week with another Ask Rob and Rob. We'll be back with the main event, the Property Podcast, on Thursday. But until then, take care. Have fun. Bye-bye.

9:31Rob D:Bye-bye.