Despite challenges, and contrary to the narrative of some media outlets, the property market remains resilient and property investment is still a popular choice.
When we are able to look past propaganda, buy-to-let investments can still be extremely profitable providing landlords are frequently reviewing their financial options with the assistance of expert broker.
In recent times you may have seen media reports surrounding the fact the UK average mortgage interest rate has risen to a level not seen in the last decade and is currently sitting well over 6%. However, whilst rates this high will be daunting for many, further investigation shows landlords should not be so fearful.
The “average rate” is heavily impacted by residential lending which contains both sub-prime and high Loan to Value (LTV) mortgages such as 95% lending. The rates connected to these products and schemes will be high to alleviate lender risk, but they have no bearing on Buy-to-Let (BTL) pricing.
At the beginning of the second half of 2023 – despite seeing an initial flurry of sharp rate increases – the BTL market has seemingly stabilised. There are several lending options currently sitting around the 5% mark, with some even now dipping below sub 5%.
Understandably, landlords will want rates to be as low as possible, and any increase on their current positon is less than ideal, but it is important to acknowledge that BTL lending is still available between 1-1.5% lower than the UK average. This is a significant reduction and with more product offerings* looking likely to drop below 5% due to factors such as reducing inflation and SWAPs rates, this will not only increase confidence but allow for many to remain in the black.
Research shows there will be hundreds of thousands of landlords rolling onto Standard Variable Rates (SVR) within the next 12 months as their existing mortgage products expire – making it even more crucial to seek up-to-date, expert advice to get the best option available to them.
If rate increases were not challenging enough, some are finding that purchasing or re-mortgaging BTL property is not quite as easy as times gone by, with many being caught out when required loan amounts do not meet lenders updated stress testing rules. For example – this will likely narrow down the option to explore alternative and more competitive rates.
Expert brokers have the ability to find ways for lending amounts to be rejigged to fit within certain lender calculators and may be able to use recent year’s property value appreciations to assist in making the numbers fit.
What is on the horizon to consider?
Pending EPC property rating requirements will require infrastructure investment to ensure properties comply with new regulation. Landlords may benefit from preferential rates and schemes by being ahead of the game.
The Government has recently announced the “Mortgage Charter” – several major lenders have signed up to these set of principles which will mean they have mechanisms to help people struggling with their mortgage repayments. Although the current guidelines of the charter only apply to residential lending, there is vocal support for the Government to extend this to the BTL sector.
It is worth remembering, that traditionally property investors are looking to maximise their investment through two means – rental income and capital appreciation. In recent years due to favourable market conditions they have often benefited from both.
If current interest rate increases do impact on the profit vs rental income, landlords should still take confidence from the fact that the UK property market remains strong and values appear to be holding.
In recent years property values in the main have increased significantly and with the right advice, landlords may be able to use the increases to their advantage; such as securing lower rates, and/or releasing money to put towards other projects, including further property investment.
If you are in need of myth busting, tailored advice relevant to your specific circumstances, please contact us at Capital Private Finance, we won’t let you down.
Regional Financial Services Manager | Capital Private Finance
* Correct at the time of writing