Landlord borrowers are no different, particularly in terms of fixed versus tracker product options, plus there are clearly ongoing considerations for those currently on a tracker which is less likely to have an early repayment charge (ERC), or at least a long-term one.
Looking at the market as it is today, and what it might be in the future, I suspect there is certainly a conversation for advisers to be having with those clients.
Keeping an eye on developments
For landlords on tracker products, there is without doubt an ongoing consideration to be made, particularly if the anticipation of future Bank Base Rate (BBR) increases does come to fruition.
May saw the Monetary Policy Committee (MPC) increase BBR again to 4.5 per cent, which was the 12th increase in a row. At that point, there was a growing consensus that the peak may have been reached, or that potentially we might see another 25 basis points increase later in the year – November seemed to be favourite.
However, that view has been kicked to the kerb with some force following the publication of the inflation figures – specifically core inflation going up – and the belief that the bank not only has to act further but it needs to be faster.
It leaves us – prior to the bank’s next MPC meeting on 22 June – with it looking inconceivable that (at the very least) a further 25 basis points increase won’t be announced.
Many commentators and economists believe the peak is now likely to be 5.5 per cent in 2023, before – one hopes – that does begin to be brought down as – we hope – inflation does fall.
As you can see, there is a lot of hope at play here, and the action that will be taken and the peak for BBR is clearly still to be written, but if you were looking at this with any sort of conviction, you would (like the markets) be factoring in further increases in 2023.
How landlords can manage changes
Clearly, for those landlord borrowers on tracker mortgages right now, this is not a racing certainty, but it does appear to be more likely than not.
So, they have to factor in what multiple BBR increases will mean for their monthly mortgage payments, and whether they do believe that 2024 will see rates move back down, meaning they can stomach paying more now in order to potentially pay less from next year.
Or is it actually the case that the fixed rate products on offer right now are going to represent the ‘value play’ over those terms, after which they may well find a mortgage market which has stabilised with lower rates to remortgage onto?
Of course, this is not the only consideration right now, because affordability is clearly an obvious one here. Those tracker product landlords also have to weigh up their ability to meet affordability measures in order to secure those fixed rates via a remortgage, plus they have to factor in all the costs of doing so, including product fees.
How lenders are responding
As we know, lenders have been looking at product options and features which are more in tune with this higher-rate environment to give landlords a better chance of meeting affordability and securing the loan sizes they require. Hence, a growth in lower rate/higher fee deals – specifically for five-year fixes.
The other big consideration here is time. Just how long will current fixed-rates be around for, especially in an environment where swap rates – at least at the time of writing – continue to move upwards.
Obviously, product pricing is based on a number of different factors for different lenders, and the time they will be able to keep rates at currently levels is not set in stone.
Will landlord borrowers need to act relatively fast if they are to secure the rates currently available, particularly if the Bank does act again?
There is much to ponder, but I suspect that landlord borrowers – particularly those on BBR trackers – will be thinking long and hard right now about what their options might be.
It makes perfect sense for advisers to be contacting them to talk through what is happening right now in this market, and how quickly that could change.
