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202 Property crash and 5 yr fixed mortgages


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Needed some general advice. Should a first time property investor (buying in personal name) buy a BTL with a 75% ltv mortgage on a 5yr fix if there is potentially another crash in 2026 as predicted by Fred Harrison? What would typically happen? Would the variable rate after the fixed period be higher in the mid of a crash? Would it be possible to remortgage during this time, or get a further advance to release equity? What's typically happened in the past?

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Theoretically, if the value was less than now, meaning your LTV had gone up, the mortgage company could ask you to pay some off to reduce the LTV or even pay it all back. However, providing you were still paying it each month, that would make no sense for them, especially in a crash, as they'd need to then sell it.

The biggest risk therefore is that you couldn't get another 75% mortgage to cover the current one, meaning you'd just be stuck on the standard rate, whatever that is. But that would also mean the value is less than it currently is, which is unlikely if there's been 5 years of growth before a crash. General lending may be difficult and there may be less products available, but you should be able to get something at a reasonable rate.

Other question is what can you do about it? You could try and find a fixed deal for more than 5 years, but I've not seen over as BTL and if there is, the rate will be a lot higher. You could also go with a 2 year fixed rate and hope you time them over the worst point of the crash. My recommendation would be to self-insure - whilst rates are low, build up a slush fund, more than just for repairs and if rates go up because you can't initially remortgage, you can use that to pay the extra costs. 

It's only really a problem for investors who take out high LTV and keep on remortgaging to take cash out and are therefore at a high LTV at the point of the crash. It was more of an issue in 2007 as you could take out very high LTV on a property, rather than the 75% that's the norm now, although it's likely those LTVs will be allowed to creep up if house prices keep rising, as it's a safe bet for the banks, as what could possibly go wrong...

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