Benefit from available business by working with a specialist lender

Originally published by Mortgage Introducer

With a more specialist buy-to-let investor, Steve Cox, our chief commercial officer, explores why it’s more important than ever that advisers work with specialist lenders like Fleet.

At 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 that time period and what was happening in terms of rates/affordability, and the like, it paints a picture which is clearly not as positive as we would like it 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, new buy-to-let lending was £6.3bn for the three months, down 55.4% on the same quarter in 2022, while the average interest rate on all new buy-to-let loans was up at 5.7%, compared to 3.67% a year previously.

There is no doubting that, with rates up at those levels, activity and demand were always going to be impacted, particularly from those landlord borrowers who have 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, 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 of course can’t discount what was happening in that last quarter of 2023, we have to acknowledge these would be completions originally arranged some months before then, and as we know that Summer/Autumn 2023 period was not exactly a low point for product pricing. Quite the opposite.

Coming more up to date, we can certainly present a far more optimistic and positive picture, not just for the sector as a whole, but clearly landlord borrowers and the advisers that service them.

Our most recent 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, just looking at our own pricing quarter-on-quarter, we can see that the average Fleet Mortgages’ two-year fixed-rate product dropped from 5.63% in the last quarter of 2023 to 5.24% in the first quarter of 2024; similarly, our average five-year fixed-rate product rate dropped from 5.7% to 5.32%.

That is a fairly significant dip over a relatively short period of time, and while we have to acknowledge this is still some 50 basis points higher than in the first quarter of 2023, the direction of travel looks to be downwards.

Of course 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 Bank Base Rate, and of course 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, however we would clearly like them to drop further, albeit we may have to wait until we see a real BBR cut which is likely to show we are now coming down the mountain rather than just sitting at the top.

It will not surprise you to hear me say that, if we can get average rates down (and hopefully below) the 5% mark, then I suspect we will be opening 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/early January we were very close to this level, and the positive impact this had on activity was very noticeable.

Since then, rates have moved up and we sit at these current levels right now, and probably will do until at least the June MPC meeting, when we should hopefully get that first BBR cut.

There are some further points that advisers need to be aware of in terms of a shifting buy-to-let market, and a shifting landlord borrower focus on what it is required in order to stay, and grow, investments in the private rental sector (PRS).

We, and this has been the case for some time, have seen borrower types shifting towards limited company investment – Fleet now has over two-thirds of our landlord borrower customers as limited companies, and the rest private investors. Those with six to 14 properties in the portfolio is now the biggest cohort of our borrowers, while the number with 15-plus properties has also grown. This perhaps tells you that bigger portfolios are more of the norm.

And we must also highlight the type of investment properties they are buying, or looking to house in a portfolio. Undoubtedly, the quest for yield, makes HMOs much more prevalent, not just in terms of adding them to portfolios, but also in terms of converting existing stock into these. HMOs as a percentage of all property types has continued to grow since Q1 2023, and we envisage this will be the case going forward.

We have therefore a much more specialist buy-to-let investor, a much more specialist property focus, a much more specialist approach, and as advisers it is imperative you work with specialist buy-to-let lenders like ourselves, and you become specialists too. Complicated portfolio structures, product needs, property requirements, are now the norm – make sure you are keeping up with all of this, and you’re likely to benefit far more from the business that is currently available.