Describing how we might have got to this point in the buy-to-let and private rental sectors might ordinarily be described as something a scriptwriter would have difficulty making up, however you then remember that – at least in the US – the writers are on strike, and therefore probably have bigger fish to fry.
However, the narrative – certainly over the past decade or so – could be described as a ‘tall tale’ of sorts, or a ‘whodunnit’, not least because one of the main protagonists in this ‘story’ has often came across as something akin to Inspector Clouseau, seemingly bumbling along, oblivious to what was truly going on, making matters worse, and relying on others to get themselves out of a hole and solve the case.
Unfortunately, we’ve not yet reached that particular denouement, and I’m starting to believe that, to reach any sort of conclusion and to clear matters up, we may need a wholly new cast and crew entirely.
Certainly, it would be something of an understatement to call this current situation a market ‘blockbuster’. While we don’t quite need Tom Cruise/Ethan Hunt and his Mission Impossible team to help us within the buy-to-let/PRS sector, we might need the Mission Sort This Mess out equivalent.
Recent figures from TwentyCi show where we are currently, and give plenty of evidence for why rents have soared in recent times, most notably due to the drop in PRS property supply.
In June this year, 241,000 homes were available to rent in the PRS, compared with 370,000 in June 2019 – that’s a fall of over one-third.
As I’ve said before, this is genuinely one of the Government’s ‘success’ stories – it set out to pull property out of the PRS and it has achieved this. Unfortunately, this was flawed logic in the extreme, because it actually needed to boost supply for both the PRS and home-ownership rather than attacking one and hoping the other would benefit.
Add in all the other challenges facing landlords today – particularly the large increase in mortgage costs triggered by the ‘mini-Budget’ and a combined blunt approach to bringing down inflation, and we find ourselves currently in a marketplace where mortgage costs have increased significantly, to a point where some refinancing landlords – particularly those with only a small number of properties – have to genuinely ask themselves whether they can continue to operate.
So, while we haven’t seen huge swathes of landlords selling up just yet, one suspects that those who might be deemed ‘amateur’ operators will be thinking now could be the time to make their move.
Of course, a lot of these properties will stay in the PRS, but even if they do, as the statistics show, there is still not enough supply to meet tenant demand, and when you add in those extra landlord costs, you get to a point where rents go up.
That lack of choice is of course difficult for tenants to ‘live’ with – many might ordinarily look for other places to move to, but with slim pickings and perhaps a fear that they’ll have to find even more money to be able to move, they tend to stay put.
I’m not sure anyone would say this is a market which currently works well, but what I do know is that it would be even worse were it not for the vast swathe of private landlords who have remained invested and are still looking to add to portfolios.
For advisers, the opportunities clearly lie predominantly in remortgaging but there will still be those who are looking to buy, if they can get the numbers right. We should also not forget that a large number of landlords own their properties outright, and they might be willing to leverage this via finance in order to pick up those properties that other landlords might be divesting.
For what it’s worth, the narrative within a narrative in the market when it comes to pricing is perhaps not as bad as some might make out. Yes, we are in a different interest rate environment, that much is obvious but talk of huge increases in ‘average rates’ within the buy-to-let market – or indeed any part of the mortgage market – do need to be taken with a large pinch of salt, not least because they include every single product option, many of which are priced higher for those borrowers who have adverse credit.
So, when I see average 2-year fixed-rate mortgages within the buy-to-let space ‘hitting’ 6.97%, I’m acutely aware that many landlords are not taking out 2-year products in the first place, 2-year product options at this level are much lower than they historically were, and there are 5-year, fixed-rate options available at over 150 basis points lower than these ‘average’ 5-year deals.
Affordability remains an issue but there are a growing number of lower fee/higher-rate product options, and – touch wood – I’m of the opinion that with swap rates calming a little in recent days, with Bank Base Rate rises built in and perhaps anticipated to not be as high as initially thought, we are likely to see buy-to-let product rates inching down in the weeks ahead.
In that sense, we are still here and absolutely committed to supporting advisers and their landlord borrower clients. Rates of course are higher than anyone of us would like but much like the choice Summer movie-goers currently have – Barbie versus Oppenheimer versus MI – there is still something for all kinds of different wants and needs.
Steve Cox is chief commercial officer at Fleet Mortgages
