21 December 2022

Kicking off 2023 With More Buy-to-let Options and Keener Pricing

By Steve Cox, Chief Commercial Officer at Fleet Mortgages

Welcome to 2023 and a new year which, if last year was anything to go by, promises to be the usual roller-coaster ride that the mortgage market is renowned for.

It’s always difficult to look ahead and determine what might be coming over the horizon – who might have predicted how 2022 would unfold when it started 12 months ago – but I think we’d all like a much greater degree of stability and, for what it’s worth, I think we’re going to get it in the buy-to-let space and wider mortgage sectors.

Certainly, none of us want to relive or endure the same environment we had in September and early October last year. All – borrowers, advisers, lenders, you name it – scrambling to make sense of what damage the ‘Mini Budget’ had wrought, and how it would impact product pricing and availability.

As many have noted, there was nothing ‘Mini’ about the aftermath of that, and I’m very pleased to see that as a sector, we have been able to move swiftly on from that. Let us not count our chickens too soon but, at the time of writing, we appear to be moving back to a pre-‘Mini Budget’ mortgage market norm, and that is certainly something to be welcomed.

From our perspective, there has clearly been a lot of noise made around the buy-to-let mortgage market, particularly in terms of existing landlord borrowers who have had deals ending in the last few months, and of course those who are coming up to the end of special rates.

Many thousands of landlord borrowers each month will have mortgage deals about to finish, and if this most recent period has taught us anything, it is the importance of advice, the importance of access to all lenders and products, and the prized asset of being able to ensure clients don’t end up having to pay any more than they need to.

Let’s not kid ourselves here, anyone remortgaging throughout 2023 could well be facing a very different rate environment to the one they last dealt with. We have been blessed as a sector, and a borrower demographic, with a highly competitive lending space. We’ve enjoyed historically low rates for buy-to-let mortgages for a good while, and while rates have been coming down in recent weeks, they still (for the most part) look very different to two/three/five years ago.

This potentially leaves both landlord borrowers and advisers in a difficult position, not least in managing expectations in 2023 about what might be achievable in terms of product pricing, loan sizes, accessibility, etc, but also around weighing up potential alternatives and dealing with a situation which might actually mean a sale is the right answer.

We know that the vast majority of landlord borrowers are invested in buy-to-let for the very long term, and there are some fundamental positives that still exist not least the lack of supply/the increase in demand, and the ability to still secure strong rental yield. But we also need to consider all the other costs that come with renting a property out, and other considerations such as energy efficiency, meeting the new EPC requirements (when they are brought in), and dealing with other PRS regulation and legislation.

However, that is where advisers will earn their corn, and I genuinely can’t see a future in which borrowers are not actively seeking out the services of advisers due in great part to the greater levels of complexity in the mortgage space, but also in terms of their own needs and considerations.

What we as lenders have to do is ensure existing borrowers have access to as much product choice as possible, that we are able to service their needs efficiently and proactively, and that we work with the intermediary community to ensure we are meeting their requirements for a landlord client base which might have to think somewhat differently about their immediate property financing.

For instance, whereas in the past, landlord borrowers were much more likely to be taking longer-term fixes at competitive rates, now a growing number are looking at short-term trackers, with or without ERCs, in order to take them through a period in which rates might be higher than they would like to fix into, allowing them to secure the finance they need but also reassess, for example, six months in the future.

Certainly, in that immediate post-‘Mini Budget’ period, we saw a raft of fixes removed by lenders, but there is further positive news here in that they are returning, and with swap rates having fallen and with anticipations around rate rises not being so high, my anticipation is that two-, five- and seven-year fixes in particular might continue to drop as we progress into 2023.

Overall therefore, my belief is that this year is already looking very different to September and October 2022, and that the positives in terms of rates, competitiveness, product choice and criteria, should keep coming as the year progresses.

This will hopefully provide you with a raft of options to offer your returning landlord clients and allowing them to continue their PRS journey, continue to make profit, and continue to offer a vital supply of property right across the country.

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