For what it’s worth, I don’t see any immediate end to this, which hopefully gives a boost of optimism to those advisers active in this product space, and hopefully helps deliver a greater amount of activity, specifically purchase, in the months ahead.
There are, as always, a number of reasons for this latest short-term environment, and with the major caveat that things can of course change and change quickly, there is much to suggest that this can be retained not just until the end of 2023 but well into 2024.
At the time of writing, and with the exception of one-year SONIA swaps, most others – certainly from two- to seven-year – are only around 30 basis points higher than they were at this time last year.
That might not seem particularly pertinent, and you might – quite rightly – say that the markets were still getting over the shock of the mini Budget back then, which had ramped rates up. Liz Truss had only resigned on the 20 October, and the fall-out from the 45 days of her time as Prime Minister was still being felt.
My point here is that, the markets were becoming becalmed and over the course of the next four or five months, we saw a market period of relative stability in which buy-to-let products were returned to market, rates were stabilised at levels where affordability became much easier, and activity returned.
In Spring 2023, that stability was wrecked by the reaction to increasingly high inflation which did not look like shifting, but again I think there are more reasons to be positive about inflation looking forward, and hopefully as it continues to fall, the markets will reflect this, and lenders will also be able to do so in terms of their pricing.
We might, quite rightly, say we’ve already seen more than the start of this theme, and we have a combination of positive factors pushing rates in a downwards direction.
This comes from the falling cost of funding via the money markets, to lenders wanting to ramp up pipelines for the start of 2024, to the competition this engenders and the reaction it gets from other lenders, to the significant reserves that a large number of banks and building societies have as a result of higher interest rates securing larger than average deposits.
A return to a competitive market
This all adds up to an increasingly competitive environment, and with the need to lend that money and secure that business, more players are willing to pull the lever marked ‘rate cuts’ in order to turn the tap on.
Now, of course, there is more to our specialist/complex buy-to-let lending sector than rate, and criteria, experience, and service levels will all play massive roles for an adviser, but certainly lower rates can make all the difference, specifically in terms of landlord borrowers meeting affordability measures, but from that, it matters in terms of not just keeping them invested, but potentially looking at today’s market and moving towards adding properties to portfolios.
Lest we forget, the fundamentals of the private rental sector (PRS) remain very sound for landlords, in terms of very high tenant demand, lower supply of property available to those tenants, but also in terms of current house price levels which have come off highs but which are likely to keep heading upwards over the long term because the supply shortage is not just confined to the PRS but the owner-occupied market as well.
A decent start to 2024
I’ve said repeatedly that buy-to-let finance starts to look much more attractive when rates are around the 5 per cent mark. We are not quite there yet, but all Fleet’s mortgages currently start with a five, and we – like others – have been inching down pricing in recent weeks.
Now, we all know this is not the market of a couple of years ago, but nothing is the same as back then, and we have to work with current market conditions and make recommendations and decisions based on now, not then.
We have made positive progress in recent weeks though, and we anticipate this good news has the potential to continue through the end of the year and into next. The start of 2024 looks a great deal better now than it did in the middle of 2023 and that is something to be happy about.