"What will shift the market are the fundamentals still driving the PRS – strong tenant demand, a lack of housing supply, the difficult in saving to buy a home, etc – and for landlords, the cost of funding."
Almost two months into the year, and with a Budget announcement just days away, there is much to contend with as a mortgage adviser with landlord borrower clients, not least because there is always an anticipation at this time that we could see some rabbits pulled out of hats which might incentivise landlords to keep adding to portfolios.
The big one would be a stamp duty reduction, which included those buying additional homes, and while it would clearly be a real positive for our sector to see this, I’m not sure the UK moving into recession was the news we required in order for the Chancellor to make this a reality.
The much-talked about ‘fiscal headroom’ seems to have gotten a lot thinner and what seemed like a very good bet for the Budget, now looks a lot further away. However, we live in hope.
Not that the buy-to-let sector is reliant on such Governmental largesse – although it couldn’t hurt – which is probably a good thing given we have generally not been in a position to welcome such measures and incentives very often over the last decade.
What will shift the market are the fundamentals still driving the PRS – strong tenant demand, a lack of housing supply, the difficult in saving to buy a home, etc – and for landlords, the cost of funding.
In that latter sense, 2024 started in a much more positive light than much of 2023, with swap rates having come down at the end of last year, and lenders being able to pass those falls onto landlord borrowers.
If you want an idea of the difference that makes, then simply compare the mortgages on offer back in June last year to January just past. On a £500k mortgage, advisers have been able to save landlord borrowers approximately £44k in interest over a five-year fixed-rate term.
Plus, of course, we know that the closer buy-to-let pay rates get to 5%, the easier it is to meet affordability criteria, and landlord borrowers can secure the loans they require, without the need to have to pay the bigger product fees – which were a key element in meeting affordability for many last year.
At the moment, we have swap rates looking much more like Spring last year, before they rocketed up after inflation showed itself to be much stickier, with the need for future Bank Base Rate (BBR) rises that required.
Of course, while swap rates – and their levels – are important right across the buy-to-let lending sector, as they figure prominently in shaping product pricing, we at Fleet are not reliant on the capital markets for our funding at all.
Which, you might agree, is a huge positive in terms of where we can position our own rates, and means we do not have to be a ‘me too’ lender, following those who do secure their funding via this means.
It means we can be fairly ambitious and competitive in the buy-to-let space and our aim this year is to be consistently in the top tier of product pricing for advisers and their landlord borrowers.
That doesn’t mean we will be at the top of the ‘best buys’ for every single product offered but it does give you an idea of where we’ll be positioning our mortgage range in the months to come.
In terms of rates more broadly and the immediate future, much will depend on when the Bank of England MPC feels it can begin to cut them. Inflation remained at 4% last month, but there is an anticipation it could reach the Bank’s 2% target by this Spring, which would hopefully give them the ammunition to start cutting BBR.
That said, the Bank is also likely to be somewhat conservative in how it approaches this, and we are not anticipating BBR to fall anywhere near as quickly as it rose over the last 12-18 months.
Overall, the picture remains far more positive than we saw in the middle part of 2023, and landlord borrowers are already recognising the shift, and what it means in terms of both remortgaging savings, but also purchasing where possible.
Lower rates open up greater possibilities and opportunities, not just for landlords but also advisers who can do so much to support their clients in a much more complex, and fast-moving, sector.
