Without the ability to be flexible within our businesses, with individual clients and cases and everything else, we would be scuppered far more times than would be acceptable.
However, one of the key uses of that flexibility is the ability to provide certainty, and there is perhaps no better example of that at present than with the interest rate environment we are part of.
For over a decade, interest rates have tended to track within a very low range, below one per cent, and while the funding of mortgages is often not predicated on Bank Base Rate (BBR), but the swap/capital markets, those rates have also been incredibly low.
It has caused the creation of a borrower demographic who is a) not used to rates being raised, and b) now worrying about where those rates eventually end up.
For all of us who remember the pre-Credit Crunch days of BBR at five per cent plus, and product rates within a similar range, there will be those who do not. Part of the job for advisers in particular, but also the entire industry, is to provide context and education around current rate levels, where they might be heading, and what this might mean.
Product rates differ to BBR, but the trend does appear to be upwards for both, and therefore borrowers will need to be advised on what is, and isn’t, achievable.
From what I’ve read, the markets believe BBR will have hit two per cent by the end of 2023, and there’s an acceptance that after many years that very low range is probably behind us.
In our space, landlord borrowers know that product rates are a moveable feast, but you will likely have sensed a recent move northwards. In all manner of sectors, the ultra-low rates that were available in October and November are long gone.
However, because we have the flexibility of a highly competitive mortgage market – particularly in the buy-to-let space – there is action that can be taken. With that flexibility you can deliver certainty.
Reassurance with longer fixes
Over the course of the last six to eight years, there has been a growth in popularity of longer-term buy-to-let fixes, particularly in terms of securing greater loan levels but also around payment certainty. It’s likely that market demand will go even further in that direction now.
Some lenders have launched seven-year fixes for landlords, because borrowers who can fix for such a term are not going to have to worry about price increases on their mortgage over a period when the rate environment appears to be heading in that direction.
Also, if you can fix your mortgage, you know that monthly cost at a time when other costs are not so certain.
Houses in multiple occupancy (HMO) landlords who include utility bills in their monthly rents are probably trying to work out how to factor that into the equation going forward.
There is therefore much to be said for the certainty provided by a long-term fix, especially when there are positives around, such as strong tenant demand, increased rental yields, and the opportunity to add to portfolios. Why not bake mortgage certainty in and secure that position of strength?