The sudden spike in UK government bond prices following the government’s September mini Budget feels as though it’s behind us. Financial markets are generally calmer since the last quarter of 2022, with swap rates moving by just a few basis points rather than the daily wild swings we witnessed during that time.
There’s now also a healthy range of products available to buy-to-let landlord customers, albeit at higher prices.
Inflation, which has resulted in waves of Bank of England base rate increases, appears to be subsiding. Wholesale gas prices, one of the main factors of the high cost of living, are falling back.
Following a quiet end to 2022, January saw positive activity in the securitisation market: hopefully a sign of a more normalised market for wholesale funded lenders. As a result – and based upon present progress – market stabilisation may continue as the year unfolds, providing participants with a firmer foundation.
The new normal
Whilst some lenders, including us, are starting to reduce product rates, it’s clear that they are unlikely to return to levels enjoyed this time last year, at least for the foreseeable future.
Multiple hikes in central bank rates have also led to rising interest rates in lenders’ back books. As a result, some existing borrowers have struggled to adjust, leading in some cases to affordability issues.
We do however generally see a level of resilience from customers who are facing up to cost-of-living adjustments whilst also continuing to meet their mortgage payments.
Towards the end of last year, the Bank of England warned that there may be further base rate increases in the coming months as part of its efforts to bring inflation down to its two per cent target.
In its February Monetary Policy Committee Report, the bank’s language suggested that interest rate rises need not be quite as aggressive. Time will tell on this point.
The Bank of England is also forecasting that inflation is likely to fall quite markedly from the middle of this year, providing a possibility that base rates may fall a little too in the shorter term and suggesting perhaps some light at the end of the current inflationary tunnel.
Despite the challenges facing the market, strong demand for rental properties remains. According to The Deposit Protection Service’s (The DPS’s) latest rent index, rents are continuing to go up: reaching a UK average of £903 during Q4 2022 and increasing by 8.27 per cent (£69) between Q4 2021 and Q4 2022.
Buy to let
While impossible to predict how the mortgage market will develop during 2023, it is clear it has shown itself resilient in adapting to the ‘new normal’ in which we now find ourselves.
One thing is for sure: lenders, brokers and landlords will need to continue to adjust, particularly on the issue of affordability.
