Experts discuss market trends
The buy-to-let market has undergone a turbulent few weeks, experiencing a host of product withdrawals, followed by the reintroduction of deals at significantly higher rates.
With the next Bank of England Monetary Policy Committee meeting to be held on June 22, many are expecting the central bank to increase the base rate yet again, which may prompt further movement. As such, Mortgage Introducer reached out to several brokers in the buy-to-let space to dive deeper into the state of affairs and how they are coping.
Battered buy-to-let market
Aaron Strutt (pictured), product and communications director at Trinity Financial, said the buy-to-let market has taken a battering over the last few weeks with product rate hikes and withdrawals.
“Paragon recently launched a selection of buy-to-let deals with 5% arrangement fees, which shows what many landlords potentially need to pay if they want a really competitive rental calculation,” he said.
Strutt said that lending volumes in the buy-to-let sector had already taken a hit, but new purchase enquiries from landlords have dropped even further recently. As a result, Strutt believes that many buy-to-let investors with mortgages will be taking product transfers rather than remortgaging, because switching lenders is almost impossible at present.
“Buy-to-let Standard Variable Rates (SVR) are also shockingly high in many cases, so landlords cannot afford to revert to their lender’s SVR,” Strutt said.
James Vince, managing director at Castle View Finance, said rents must go up and expectations must be aligned to current market conditions.
“The buy-to-let market has been the backbone of affordable housing since the heavy exit of council-owned properties in the 70s, 80s and 90s,” Vince said. In recent years, he explained, landlords have enjoyed unprecedented low rates allowing fantastic cash-flowing businesses. However, with the base rate increasing, Vince said lenders have had to increase rates to maintain their margins, leading to these cash-flowing assets being tested far more than landlords are accustomed to.
“We have seen landlords who have not increased rents for years now faced with mortgages doubling in some cases; the only solution is to reflect this in the rent and thus drive up tenants’ cost-of-living, risking losing good tenants,” Vince said.
He believes landlords should reflect on their property holding strategies, as investing in bricks and mortar has always been a long hold game.
Buy-to-let trends
Ross Lacey, director and chartered financial planner at Fairview Financial Management, said he has seen an increasing number of landlords struggle to get the borrowing amounts they desire because of higher rate stress tests used against rental income.
“This has meant we have had to increasingly recommend products with lower pay rates, but higher product fees to boost borrowing capacity,” he added.
Elliott Culley, director at Switch Mortgage Finance, said he has witnessed most landlords wanting two-year-fixed deals over five-year fixed deals, mainly due to the expectation that mortgage rates will be lower in 2024-25.
“However, the majority are finding the rent they receive is not high enough to fit the rental calculations for a two-year deal,” he said.
Indeed Culley said the ability to use top slicing has also diminished; Precise Mortgages recently changed its policy on top slicing and no longer accepts this for remortgages.
“As a result, the potential options for most landlords are limited and we are advising the majority of landlords to complete a product transfer with their current lender,” Culley said.
How do you believe the buy-to-let market is fairing given current economic conditions? Let us know in the comment section below.
