01 November 2023

Advisers vital for landlords whether remortgaging or purchasing

By Steve Cox, Chief Commercial Officer at Fleet Mortgages

While 2023 has been a turbulent year to navigate through, particularly for advisers, there is a solidifying of the ground on which we work, and my own view is that a greater level of certainty about what might happen next could mean an increase in activity in 2024.

Certainly, we’ve all seen how difficult the purchase market has been over the past nine months, and while I am not willing to bet the house on a noticeable increase in landlords buying in the months ahead, I certainly think that – with a fair wind – we should begin to see a little more interest in adding to portfolios.

Our latest Rental Barometer research shows that it is a combination of embedded factors that are driving the private rental and buy-to-let sectors at the moment.

Namely higher interest rates impacting affordability, a lack of supply and increased tenant demand pushing monthly rents and yields up, and both these in combination with house price dips impacting on the ability of landlords to add to portfolios.

Combined it presents a tricky environment, not forgetting those landlord borrowers who are coming to the end of their existing mortgage deals and are seeking to refinance when rates are likely to be decidedly higher than they were last time they visited their adviser.

That said, this market is nothing if not flexible, and while interest rates do make the affordability challenge for landlords even harder, we have seen lenders increasingly innovating in this space, and more willing to offer other product options which help landlord borrowers, particularly higher fee/lower rate products.

In Q3 2023 our average loan size was up to £187k from £174k in the previous quarter, which perhaps shows that these higher fee/lower rate deals are helping loosen those affordability restraints, and they are keeping landlords invested and financed.

Also, in recent months as swap rates have continued to ease, and following the Bank’s decision not to raise BBR in October, we’ve seen a growing number of lenders – including Fleet – able to ease their own product rates downwards. Our average rate across Fleet’s entire range dropped from 6.09% in Q2 to 5.74% in Q3.

That fall in rates is important because what we’ve tended to see was a greater ability for landlords to secure finance, to get over those affordability barriers, when average rates are closer to 5%.

Certainly in that post-‘Mini Budget’ period – which was chaotic to say the least – we found that when a degree of stability was restored by a new Chancellor and rates eased, there was a significant uplift in business when we were reaching rates of, on average, 5%.

That is clearly important looking forward, especially if something of an interest rate peak has been reached, although again – given the ups and downs of the last year – I wouldn’t be betting any money on this.

Overall, advisers active in the buy-to-let space are still going to be needed. There is, at the very least, billions of pounds of buy-to-let lending up for renewal in any given quarter, and it is only advisers who are able to access the whole of market on behalf of their clients in order to be able to ensure any increase in monthly payments is kept to a minimum.

The good news also here is that portfolio landlords are in this sector for the long-term. The average number of investment properties owned by one of our borrowers is currently 12, which firmly puts them in professional/portfolio landlord territory.

They will sense an opportunity still to be had, particularly if prices continue to dip, and especially if tenant demand remains as high as it is with supply still difficult to access for those tenants. 

Rental yields have continued to go up with monthly rents, and those landlords who feel able to make the numbers work, will be requiring a professional adviser to help them get the most of a purchase opportunity. Make sure it’s you.

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