By Jason James, Corporate Account Manager
After a tumultuous few months, it appears at least for now, that lenders and brokers can enjoy something resembling an element of ‘stability’ slowly creeping back into the markets and mortgage product offerings, as has been evident in the first couple of weeks of November.
Swap rates – which have driven so much change in Buy-to-Let rates and product availability remain volatile but recently have begun creeping down, which is encouraging.
That being said, however, many of the challenges made by a year of uncertain conditions, exacerbated by the recent mini-budget and the impact of rising cost of living remain.
Landlords, property investors and brokers are faced with the difficult choice of where to go in that environment.
BBR changes and other challenges
This month’s 0.75% increase in the Bank of England Base Rate (BBR) was in line with market expectations, and the impact upon the price of mortgages across the market continues to be a challenge.
We are starting to see some movement with house prices, which are beginning to decrease in some locations such as East Anglia and the South East while house prices in other areas remain static.
Also there is a lack of options available to many consumers and property investors unwilling to tie themselves into pricier long-term deals, thereby we are seeing the mortgage market contract.
These factors, and the challenges of the preceding months, has created an aura of ‘doom and gloom’ around the mortgage market, in particular negative commentary concerning the Buy-to-Let market and its future.
There is a looming fear over potential Buy-to-Let ‘mortgage prisoners’, where landlords are left unable to remortgage as criteria, LTV and stress tests have changed since their last remortgage. Or landlords who wish to sell their property are struggling to find suitable offers as appetite decreases and the ability to mortgage those homes diminishes.
At a recent event where I was on the panel, questions were abound about a sell off of Buy-to-Let properties from the ‘Dinner Party’ landlord, and brokers asking questions about a recent article stating the Buy-to-Let market was dead.
What this speaks to me is the confusion and uncertainty and – for lack of a better word – fear in the market right now as we walk a path unknown in the past decade.
With that in mind, it is important we set out what we do know.
The strengths in the market
There has been no attempted firesale of properties or of landlords withdrawing from the market, and the brokers we have spoken to have shown a clear intention from their clients that the desire to continue in the Buy-to-Let and private rental space. Some positive points therefore to consider:
- Landlords still want to buy
- The number of landlords is at a record high
- The number of limited companies for property purposes is continuing to grow
- The demand for rental property remains high
- Lenders still want to lend
So the fundamentals of the market therefore remain: the challenge however is supply and demand.
Potentially we could see some landlords scaling back their ambitions, as opposed to purchasing three or more new properties, they are likely looking at one or two.
The build to rent sector is continuing to expand. In fact a recent report from Cushman & Wakefield said investment in the third quarter of 2022 had almost doubled compared to 2021.
So this points towards a market that will remain in demand during and after the current turbulence.
The doom, gloom and fear has been borne out by brokers and landlords not knowing where to turn throughout this uncertain period with reduced options in how they fund the deals they do have.
Innovating to succeed
Like pretty much every Buy-to-Let lender, swap rate increases prompted us to withdraw our two-year fixed rates and the remaining longer term fixed-rate products increased in price.
What this has left for brokers and their landlord clients is a higher-rate environment with fixed-rate options locking them in for five or seven years, which is less than ideal for some when rates are expected to normalise in the next 18 to 24 months.
In response to this, we’ve launched a two-year tracker Buy-to-Let mortgage, with no Early Repayment Charges (ERCs).
This provides flexibility to purchase and remortgage now, with the freedom to exit with no ERCs as rates normalise.
In addition our rental calculation stress for the tracker product is at 6.39% for standard properties, and 6.29% for properties with an EPC rating of A – C. While many other lenders’ stress tests are currently higher, some in the 7%s and even 8%s, this tracker stress rate is one of the likelier ways to secure higher LTVs up to 75%.
So despite the challenges we will continue to face in the current subdued market – and I won’t downplay those – there is still demand and there is still opportunity in the Buy to Let market. And for the lenders who are willing to innovate, they can offer the solution brokers and their clients need at this challenging time.