After a rollercoaster year, we are heading into a new normal – Aria Finance

by: Lucy Barrett, managing director of specialist broker Aria Finance
  • 20/12/2022
  • 0
After a rollercoaster year, we are heading into a new normal – Aria Finance
The past 12 months have been a rollercoaster ride. In fact, it’s hard to remember a year topsy-turvier than this.

Thankfully, as the curtain starts to come down on 2022, a sense of stability is gradually returning.  

In my last column, a little over a month ago, I wrote about the headaches that ongoing market volatility was causing brokers and their clients. 


A turned around market 

With interest rates rising quickly, affordability was suddenly becoming an issue. The outlook was pessimistic. 

To make matters worse, shortly after that, the Office for National Statistics revealed that inflation had risen to a 41-year high of 11.1 per cent in October. 

The following day the Chancellor delivered his Autumn Statement announcing a sweeping package of heavy tax rises and spending cuts. Thankfully the market response was positive, and it helped reassure investors on the UK’s fiscal stability. 

Inflationary pressures still remain, but the pairing of Jeremy Hunt and Rishi Sunak has helped to undo some of the damage caused by Kwasi Kwarteng and Liz Truss. 

Bond rates have rallied and swap rates have fallen significantly from October’s high, which has helped to restore market confidence further.  

The pound’s recovery has also contributed to a more optimistic outlook. At its worst, shortly after Kwasi Kwarteng’s mini budget, it fell to £1.07 against the dollar but it has recovered to £1.23 today. 

The result of all of this, is that lenders have been able to slowly begin to reduce the rates on offer to landlords.  

The best two and five-year fixed rate deals are now under six per cent and with competition among specialist lenders hotting up, we may see further rate reductions in the coming weeks. 

On top of this, lenders are also starting to ease affordability tests. When the market was jolted in September, lenders became increasingly cautious and started upping stress tests.  

What is happening now, is that they’re taking a slightly more flexible approach to affordability. Interest cover ratios are softening and, in some cases, to help landlords meet affordability tests, their personal income is being taken into account.   

The process known as top slicing had all but disappeared earlier this year, but it’s starting to creep back in as lenders ease their lending criteria.  


A changed outlook 

However, while rates are slowly improving for landlords, securing finance remains a significantly bigger challenge than this time a year ago. 

Recent analysis shows that the number of buy-to-let mortgage products on offer has fallen by 51 per cent in the past year, down from the 3,624 in November 2021 to 1,595 in November 2022.  

The landscape has changed dramatically over the past 12 months, but with a sense of stability returning, 2023 will hopefully bring more choice and flexibility for landlords.  

Ultimately, much of this will depend on how far inflation has left to run and, subsequently, how much further the Bank of England decides to raise interest rates. 

The Monetary Policy Committee already added 50 basis points to the Bank Base Rate in December, which takes it to 3.5 per cent. 

Further hikes are expected early next year but there is a growing sense of optimism that they won’t pass five per cent. 

For lenders, brokers, and landlords alike, 2023 will be a year of adjustment and trying to get to grips with a ‘new normal’.  

Whatever happens, let’s hope it involves a few less loop the loops.   

There are 0 Comment(s)

You may also be interested in