"Never more than now, advisers have a crucial role in helping buyers through more challenging mortgage journeys, but it can be a precarious place."
On 4th August, the Bank of England made their expected interest rate hike, as millions grapple with the cost of living crisis.
By raising interest rates to the highest level in nearly three decades - from 1.25% to 1.75% - the Bank aims to curb inflation amid the backdrop of the rising energy prices and the global impacts of the Russian invasion of Ukraine.
The National Institute of Economic and Social Research (NIESR) has forecast inflation will soar to “astronomical” levels over the next year where it could peak at 15%. This in turn will force the Bank of England to raise interest rates even higher (and for longer) than previously expected. Some commentators are predicting that base rate will be well over 2% by the end of the year and 3% plus in 2023.
The UK is also projected to enter recession from the fourth quarter of this year, impacting millions of the most vulnerable households, especially in the worst-off parts of the country.
But while the economic outlook remains dismal for the near future, there is a ray of sunlight for property investors as the buy-to-let market continues to shine.
Increased interest in buy-to-let finance
In some quarters, a slowing of the buy-to-let market was predicted as legislative changes, mounting costs and the predicted changes to EPC energy efficiency ratings would discourage existing and prospective landlords.
Not only that, industry commentators raised the question of whether some smaller landlords would decide enough is enough and throw in the towel?
Despite these challenges coming down the track, Google has seen a 34% increase in searches for ‘buy-to-let finance’ between H2/21 and H1/22.
This could be due to the vast numbers of savvy brokers and their landlord clients moving quickly to remortgage onto a better rate to fix their budgets to weather the worsening economic conditions.
Another contributing factor could be new players entering the market wanting to capitalise on the increased demand for rental properties and rental income available, a trend which is reflected in the data also.
It’s still an attractive opportunity for first-time landlords
The cost of living crisis has led to a rising number of prospective buyers being stuck in the rental sector for a little longer, as deposit saving takes a back seat.
Additionally, recent statistics show that in the past year UK rents have increased by 8% on average. This combination of demand and rental yields has made the sector an attractive income opportunity for new landlords.
Between H2/21 and H1/22 Google saw an increase in ‘first-time landlord’ searches by 13%, so despite this not seeing the same marked increase as other areas, it still demonstrates landlord hopefuls are eyeing up the space as a lucrative investment opportunity.
Limited companies remain king
With so many wins to purchasing a property through a limited company, it’s easy to see why half of new buy-to-let mortgages were taken out by landlords through a company last year.
With an abundance of benefits ranging from reducing or avoiding tax payments, protection of material assets and property transfer ease, you can see why this is an appealing purchase method.
This is reflected in the stats too, Google saw an increase in interest of ‘limited company buy-to-let’ by a staggering 50%, illustrating the rapid move of portfolio landlords and limited companies capitalising on the increased demand in the rental sector.
Supported further in a recent survey by Paragon, their study which collated responses from around 700 landlords, found that the number planning to set up a limited company in order to purchase a buy-to-let property rose from 50% in the first quarter of the year to 62% in the second quarter of 2022.
Rewards for those who act now
Product criteria changes are seemingly relentless at the moment, with the switching and swapping of rates and product withdrawals leaving brokers with whiplash.
Never more than now, advisers have a crucial role in helping buyers through more challenging mortgage journeys, but it can be a precarious place.
Despite it feeling like walking a tightrope at times, it is vital to remember that despite the interest rate and inflation rises, mortgage rates are still historically very, very low and in the past have always been significantly above inflation.
Does anyone remember 1992 when interest rates were temporarily at 15% and CPI inflation running at 8%!? The combination of our low interest rate environment and the demand for housing outstripping supply, fuels the market and still makes it an attractive sector to be in – despite the current wobbles.
Specialist products are a beacon of light
High Street lenders are awash with cash at the moment and so they are becoming increasingly choosy over who they want to lend to and the types of property they want to lend on. This is particularly true in the buy-to-let sector where many new developments are high rise apartment blocks in booming city centres. This is where partnering with a specialist can give a boost to your clients’ buy-to-let ambitions.
A specialist will scan the entire market for you, helping you navigate through moving obstacles, and can even provide you with access to exclusive or semi-exclusive buy-to-let products with the UK’s best specialist lenders.
Not only that, specialist underwriters can guide you, alleviate the administrative burden on your day, and also be an additional driving force behind your case’s completion.
So while there appears to be nothing but dark clouds on the horizon right now, there will always be opportunities for savvy mortgage brokers in buy-to-let who know their market and the right specialist distributor to partner with.
