As much as we might like to have moved the conversation away from rates, when it comes to the buy-to-let market over the past few months, now things have begun to settle down, it is time to once again revisit the happy topic.
HSBC created headlines last week by launching the first homeowner mortgage since the mini-Budget under a 4% interest rate. Broadly, the industry expects that by the end of the 2023, 5-year fixes in the homeowner market will be regularly available in the 3-4% region, signalling a reduction from where we were last winter.
But what can we expect in the buy-to-let market, and were original considerations that people should wait the market out correct?
The Bank of England Base Rate trends
In its November fiscal forecast, the Office for Budget Responsibility predicted that the Bank of England Base Rate would reach 4.8% in Quarter 3 of this year, and 4.5% in Quarter 3 of 2024.
While swap rates have calmed which in turn has allowed lenders to drop rates – like we did recently – it is clear the Bank of England is not finished with its rate rises just yet, and we will be operating in an environment very different to the one we became accustomed to after 2008.
But is this really a surprise? The 14-year period between 2008 and 2022 was a historical anomaly, and while the end of 2022 was a shock to the system, in the long-term it may be viewed as a return to normality, rather than an up that eventually comes down.
Stopping reacting, starting planning
It is with this in mind that brokers, their landlord customers and their lender partners need to start navigating 2023.
Rates are coming down, yes, but slowly and I don’t think we can carry on under the assumption they will return to their 2021 levels.
So what options are open to your clients in the here and now?
BBR is expected to peak later this year before coming down, so tracker products still offer some short-term sacrifice for potential long-term gain if and when the market settles.
There is space for more long-term thinking now though as landlords can look to secure their portfolios against further uncertainty, with 5-year fixes as they come down.
As previously mentioned, swap rates have stabilised, and while we anticipate the BBR to go to 4.5% next month, that will be the peak. If that’s the case swap rates will then drop, so your landlords can venture into the long-term remortgage market with more confidence they won’t miss out on a much cheaper rate.
We’ve been making the case throughout this period that landlords shouldn’t lose sight of long-term planning, and it remains essential, especially as they need to meet the demand of new EPC requirements.
Using bridging to capital raise and fund refurbishments, generating more value and higher yields, remains a good option, especially in a wider market where house prices could be on a downward trend, landlords need to extract value where they can.
Let’s get to work
It has been six months now since the mini-budget caused shockwaves, and while the ripple effects are still being felt, it is now the right time to surf them.
The winter in between has shone a sharp light on the need for high quality, efficient properties that renters can call home, and by taking a long-term view of their portfolio landlords can be ready to provide that.
Sophie Mitchell-Charman is commercial director at LendInvest
