Options.
Ask most advisers what they are seeking to provide their clients with, and I suspect that this will figure high on the list.
However, what we’ve clearly seen in the wider mortgage market, and specifically the buy-to-let sector, in recent weeks is a drop in the number of product options available to landlord borrowers.
And, again specifically, it has been fixed-rate product options that have borne the brunt of the recent market turmoil, making it initially impossible for lenders like ourselves to offer these, and when we have been able to broaden our range, we have been able to offer five- and seven-year fixes, but (as yet) we are not offering two-year fixed-rate deals.
Plus, of course our pricing for these fixes is up on what it was before the Mini Budget, however given the Government u-turns on the vast majority of measures announced a few weeks ago, I am now hopeful that we will see rates begin to stabilise again, allowing lenders to potentially price downwards, although of course nothing is certain.
However, the initial reaction to the u-turns has been positive, but judging by recent comments from the Governor of the Bank of England, Andrew Bailey, we must anticipate a further increase in Bank Base Rate when the MPC meets in early November.
Just what that increase will be remains to be seen, but certainly the money markets are now predicting Base Rate to be 1% less this time next year than they were in the immediate aftermath of the Mini Budget. Again, let’s hope that this anticipation continues to track downwards.
It is however a complex and complicated picture to view and, we are still clearly significantly down on the number of products we would ourselves like to have in the market, and in a wider sense, what we would like to see advisers having access to right across the buy-to-let mortgage piece.
So, where do we move from here? Well, the first thing to acknowledge is today is a moment in time, and we can’t predict what the situation will be in, for example, six months’ time.
It does seem inevitable that the Bank of England will raise BBR next month, however future rises, or when they might take place, can’t be predicted. As mentioned, if Jeremy Hunt’s recent actions do provide a greater degree of confidence and certainty to the money markets, then the picture may look less severe in the future.
Which means that some landlord borrowers might be looking for shorter-term options which allow them to cover off the next half-year, for example, at which point both they and their advisers may find the market looks different, and there are more competitively-priced product options to choose from.
This is why we recently launched some new tracker products that only come with six-month ERCs, that track Bank Base Rate, but do provide landlord borrowers with the chance to look again in Spring 2023, at which point we may (hopefully) be in a very different piece.
Now, of course, the pricing on these products will change if/when BBR changes, but even with that being the case, they are still below what is currently available for a five- or seven-year fix, and they do provide the opportunity to look again at the situation in 2023, rather than 2027 or 2029, when the interest rate environment might be wholly different.
Of course, the monthly cost will rise as/when/if BBR rises, but if advisers and landlords can bake that into their affordability over a six-month period, with the option to look again after that period, then it might well be the right short-term solution in a market which has been particularly volatile lately. And, with Fleet, if they do happen to be purchasing/remortgaging a property with an ERC rating of C and above, they will benefit from a slightly better rate.
Overall, it’s clear that we are not where we would want to be right now in terms of the number of products available to advisers/landlord clients, however I’m hopeful that we can see an upward trajectory here in the coming weeks and months, and that borrowers will be able to secure the finance arrangements they need for both the short- and longer-term.
Steve Cox is chief commercial officer at Fleet Mortgages
