Is a turning-point just around the corner?

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Positive news within the buy-to-let sector has not always been easy to find during 2023, so a fairly significant increase in the number of products available right now, coupled with some downward pressure on rates is perhaps not to be sniffed at.

The latest product figures come from Moneyfactscompare who recently announced the number of buy-to-let products has breached the 2,500 barrier, up by over 100 deals on last month’s figures, and over 1,500 up on a year ago. Which, as we all know only too well, was in that post-‘Mini Budget’ period when the market was struggling to understand what had happened, and what might actually happen next.

It is a blessing that those days are over a year behind us, but clearly we are all still living with the consequences of the decisions made back then, even if some politicians would like to think they were some bygone era, long ago, and we should not dwell too much on them.

The other positive news is around product pricing, even if on the face of it, when you look at Moneyfactscompare’s average buy-to-let rates for both two- and five-year fixes, it does not make particularly positive reading.

The former has fallen since September, but still remains at 6.4% (previously 6.64%), while the latter has also dropped from 6.49% to 6.32%. For those landlord borrowers who last took out a deal two/three/five years ago, those rates may well be eye-wateringly high in comparison, and a good 3%-plus on what was achievable back then.

But, as with all such averages, we should take into account the fact these are average rates across all buy-to-let product options, including those for landlord borrowers who may have varying degrees of adverse credit and which will obviously be priced higher than those deals for those borrowers who do not have this.

Looking at our own current two- and five-year fixes, for example, pricing tends to be more around the mid-5% range, and we – like many other buy-to-let lenders recently – have been able to cut our rates over the last few weeks.

I’m often asked whether that trend is likely to continue, however it’s a difficult question to answer and certainly a very hard one to predict. What I do know is that the market ‘returns’ to a much healthier picture the closer we get to a rate level of around 5%.

Certainly, after the ‘hot mess’ of the mini-Budget we had in Autumn 2022, when a large degree of stability – and Bank of England money – was injected into the market, and when we saw buy-to-let products inching down to that 5% level, we were certainly seeing a significant amount of business being written, and there appeared to be a much more bullish market for advisers to access on behalf of their landlord borrowers.

Unfortunately, in 2023 what threw a significant obstacle in the road was the sticky nature of inflation, and the issues the powers that be had in trying to get inflation down quickly.

At the height of Spring 2023, the nervousness around very high inflation – and how long it would be at these levels – spooked the market which resulted in swap rates zipping back up, impacting severely on the mortgage marketplace. The resulting pulling of products at very late notice would have pleased no-one, but this was absolutely necessary for many lenders given the product price points had shifted northwards so suddenly and severely.

Since then, we have had a much more stable swap rate environment, but this has been subject to ups and downs too, and it’s these twists and turns which are difficult to predict and difficult to overlook when you are trying to get competitively-priced products out into the market. Believe me, I know.

So, overall, while we would certainly say that 2023 has been nowhere near the most favourable market for landlord borrowers, buy-to-let lenders, or the advisers that serve their clients so well, there are a few shafts of light beginning to spread out across the land.

It is still a difficult environment, particularly in terms of landlord borrowers meeting affordability, however my hope is we can continue to benefit from interest/swap rate stability, that inflation continues to fall, that it feeds into greater confidence on rates, and we can translate that into our own product pricing over the longer term.

We certainly want to do as much as we can in the pricing arena, and to provide advisers with as many competitive options as possible to recommend to clients. It may not feel it quite yet, but I sense we are not too far from turning a considerable corner, and the outlook for next year appears to be much better than we could have expected during large parts of 2023.

Steve Cox is chief commercial officer at Fleet Mortgages

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