New Beginnings in Buy-To-Let

Originally published by The Intermediary

September always feels like the start of something new, a ‘school year’ beginning within a ‘calendar’ year and Autumn heralding what looks likely to be a hugely important three to four-month period as we push towards the end of 2024.

As I sat down to write this, the Prime Minister, Keir Starmer, was standing in the garden at 10 Downing Street outlining what can only be described as a hugely negative and depressing appraisal of the public finances.

It’s difficult at this stage to read between the lines of what is fact and what is potentially party political manoeuvring but, what seems obvious to note, is that next month’s Budget is going to contain a raft of cuts and tax-raising measures.

Whether those measures target the buy-to-let sector, and landlords in particular, remains to be seen. They have certainly been in the crosshairs in the past and therefore we can’t rule out further attempts to secure tax revenue from them.

However, what the Government will need to weigh up is the further disincentive to invest and offer properties to the PRS that any further, significant taxation measures might deliver. Particularly at a time when we have seen positive movement elsewhere, notably in terms of interest rates, and when as a result there has been an easing of affordability which might well allow landlords to seek to invest further rather than pull back from the sector.

Let’s not forget that the housing strategy of this Government is also going to depend upon it having a thriving PRS, not least while it tries to up the number of homes being built over the course of the next Parliament.

Regardless of whether it gets anywhere to hitting its targets or not, there are still going to be millions upon millions of people who either don’t wish to buy, or still can’t buy, and therefore we need PRS housing in order to be able to meet their needs.

It would seem like any attempt to tax landlords further or disincentivise them from continuing their investments, or even adding to portfolios, is simply going to draw supply from the market and ultimately lead to higher rents. Add in potential policy measures such as rent controls and the situation will be worsened.

Of course, this hasn’t stopped previous Governments in recent times still going after the landlord tax ‘dollar’ but it is to be hoped this incarnation recognises the consequences of such action.

From a more positive perspective, as mentioned, we have seen Bank Base Rate and swaps falling in recent weeks, and this has been reflected in falling product rates, which clearly help landlords in terms of securing the loans they need at more affordable prices.

That matters in the next few months, particularly for existing landlord borrowers coming to the end of their deals, and we know September through December is a peak time for maturities.

According to data from CACI earlier in the year, we have approximately £11.5 billion of buy-to-let mortgages coming to an end through this four-month period, with October in particular seeing £3.4 billion in just one month.

Notable regional ‘hotspots’ for maturities are London, the South East, the North West, The North East and the South West, although of course there are deals coming to an end right across the entire country.

To say this represents a strong opportunity for advisers would clearly be an understatement and it’s obviously important that communication is being made right now with all landlord borrowers who are coming up to the end of their special rates.

There is a two-fold point to make here. Clearly, a large number of landlords will be coming off five-year fixed rates at this time, and there is likely to be a marked difference in terms of the rate they achieved back in 2019 compared to now. However, there will also be some borrowers coming off two-year deals secured in the immediate aftermath of the ‘Mini Budget’ and therefore might be able to secure a much better rate.

The fundamentals of this of course remain the same and that is that advisers have the opportunity to secure the finance their landlord clients need, either presenting options which keep any mortgage payment increase to a minimum or ensuring 2022 borrowers are able to secure loans at cheaper rates than were achievable back in those dark days.

What happens next in terms of rates is, of course, up in the air. There may be future cuts to come but there are no guarantees. While some might be willing to wait a bit longer, maybe on trackers, others will want payment certainty for at least a couple of years, when they can revisit their options again, potentially in a rate environment which has moved down further.

Overall, while we await the Budget and what might befall landlords, the options and pricing available to borrowers now is better than it has been for some time when it comes to mortgage finance. Advisers should seek to make the most of this, and to ensure their clients are placed in the best position possible in order to continue to run profitable portfolios.