REVIEW
BUY-TO-LET
Benefit from available business by working with a specialist Steve Cox Chief commercial officer, Fleet Mortgages
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t the end of March, UK Finance published a raft of buy-to-let mortgage data focused on the last quarter of 2023. Perhaps unsurprisingly, given what was happening in terms of rates, affordability and the like during that period, it paints a picture that is not as positive as we would like it to be, or – dare I say it – as positive as I think the last few months have been. Back at the tail end of last year, the value of new buy-to-let lending amounted to £6.3 billion for the final quarter, down 55.4 per cent on the same quarter in 2022, while the average interest rate on all new buy-to-let loans had increased to 5.7 per cent, compared to 3.67 per cent a year previously. There is no doubt that, with rates up at those levels, activity and demand were always going to be impacted, particularly among those landlord borrowers who had the opportunity to wait out on the market. Somewhat ironically, they may have not had to wait that long, given that through December and certainly into early January 2024, we saw some significant shifts in swaps, resulting in rates falling, which acted as a catalyst for greater levels of activity in the buy-to-let space. Indeed, while we can’t discount what was happening in that last quarter of 2023, we must acknowledge that the UK Finance figures would have represented completions originally arranged some months before then; and, as we know, that summer/autumn 2023 period was not exactly a low point for
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product pricing. Quite the opposite. Looking at more recent data, we can present a far more optimistic and positive picture, not just for the sector as a whole but for landlord borrowers and the advisers who service them. Fleet Mortgages’ latest quarterly Rental Barometer index covers the first three months of 2024, and it shows a noticeable difference to the picture presented by those UK Finance figures. For instance, from our own pricing quarter-on-quarter, we can see that the average Fleet Mortgages two-year fixed-rate product dropped from 5.63 per cent in the last quarter of 2023 to 5.24 per cent in the first quarter of 2024; similarly, our average five-year fixed-rate product rate dropped from 5.7 per cent to 5.32 per cent. That is a fairly significant dip over a relatively short period of time, and while we must acknowledge that this is still some 50 basis points higher than in the first quarter of 2023, the direction of travel looks to be downwards. There are a number of areas to focus on here, not least inflation and whether it continues to fall to a point where the Bank of England can cut the Bank Base Rate (BBR), as well as what happens to swap rates in terms of their anticipation of future rate levels. As I write, swaps are not a million miles away from their levels of a year ago, but we would clearly like them to drop further. However, we may have to wait until we see a real BBR cut, which is likely to show we are coming down the mountain rather than just sitting at the top. If we can get average rates down, and hopefully below the five per cent mark, I suspect this will open up the market for many more landlord borrowers. We have consistently viewed this as the point where affordability becomes far less challenging; in fact, in those heady few weeks of late December to
MORTGAGE INTRODUCER SUMMER 2024
early January we were very close to this level, and the positive impact this had on activity was noticeable. Since then, rates have moved up, and we will probably sit at current levels until at least the June MPC meeting, when we should hopefully see that first BBR cut. There are some further trends advisers need to be aware of in terms of a shifting buy-to-let market and a shifting landlord borrower focus on what’s required to stay, and grow investments, in the private rental sector. For some time, we have seen borrower types shifting towards limited company investment. Over two thirds of Fleet’s landlord borrower customers are limited companies; the rest are private investors. Those with six to 14 properties in their portfolio are now our biggest cohort of borrowers, while the number with 15-plus properties has also grown. This suggests that bigger portfolios are more the norm. We must also highlight the types of properties investors are buying or looking to house in a portfolio. Undoubtedly, the quest for yield makes HMOs much more popular among buyers not just looking to add to their portfolios but also to convert existing stock into these property types. HMOs as a percentage of all property types have continued to grow since Q1 2023, and we envisage this will be the case going forward. We therefore have a much more specialist buy-to-let investor, a much more specialist property focus and a much more specialist approach. As advisers it’s imperative you work with specialist buy-to-let lenders like us, and you could become specialists too. Complicated portfolio structures, product needs and property requirements are now the norm – keep up to date with all of this and you’re likely to benefit far more from the business that’s currently available. M I www.mortgageintroducer.com