Mortgage advice: ‘My fixed rate ends in three years, what are my options if I move and rent out my flat?’

Lifestyle and travel journalist Rebecca Barnes has been keeping an eye on the recent interest rate rises.

She considers herself to be in a “fortunate position” because she doesn’t have to worry about an imminent rise. “But I couldn’t afford my mortgage rate to more than triple.”

At a six per cent rate of interest, Rebecca’s monthly repayments would skyrocket by nearly a third, to about £940.

“I’m thinking of paying off more of the capital,” she says. Following a change in personal circumstances, she’s also considering a move out of London and potentially renting out the flat. “I’d like to know what my options for this would be and if I’d lose my lucrative mortgage deal.”

Mark Humphrey, director of MHC Mortgage & Protection Ltd, says:

Most high-street lenders will allow you to overpay by up to 10 per cent of your balance each year without penalty, either as a lump sum, regular payment or both. To reduce the impact of a higher interest rate in 2025 for Rebecca, she could ask her lender to increase her monthly direct debit now. This can be dropped back down to her “normal” payment if needed. By 2025, not only has Rebecca reduced her mortgage balance, but she’s become accustomed to the higher payment, meaning a smoother transition to the new rate.

If Rebecca decides to rent her flat out, a good starting point would be to speak to the Association of Residential Lettings Agents. They are a registered lettings agent, usually happy to visit a property and provide an estimated monthly rental figure, free of charge. Rebecca should then approach her mortgage lender and ask for consent-to-let. Her lender will look at several factors, including anticipated rental income, flat value and existing mortgage balance, before agreeing to this. Assuming Rebecca’s request is approved, her lender may allow her to remain on the current rate until it expires, or some may increase this rate, typically by an extra one per cent, to reflect the additional risk. After 2025, Rebecca could look at switching to a buy-to-let mortgage. While rates may be higher, she could switch to interest-only, to keep monthly payments down.

Sarah Tucker, founder of The Mortgage Mum, says:

Our advice would definitely be to keep that amazing rate until the end of the fixed-term period. By 2025, experts think interest rates will have become more “normal”. It’s important to point out that does not mean the same rate she has now, as she fixed this when rates were historically low. If Rebecca looks at her original offer, she’ll see her mortgage will have been stress-tested on a much higher rate. This gives you an idea of what the “worst-case scenario” could look like and will help her feel better prepared.

If Rebecca can overpay, she needs to ensure she keeps to the lender limits, usually 10 per cent. Alternatively, she could put money into savings and, when the time comes to remortgage, use this to reduce her balance.

If she wants to rent the flat out during this fixed-rate term, she needs to ask for consent-to-let from her lender. There is often a nominal charge, usually under £500, and this would allow her to keep the mortgage she has and rent out the property.

If she wanted to buy somewhere else, we’d consider a let-to-buy, looking at her options to port her existing rate to a new property, while getting a buy-to-let mortgage on the flat. This will ensure she doesn’t lose her excellent rate.

You should seek independent advice from a qualified professional before acting upon any information contained in this article.