Interest rate time horizons can be difficult to deal with at the best of times for mortgage advisers and their landlord clients, especially after a decade or more when there was a great deal of certainty around rates and they barely moved at all.
I’m not sure what is the most common question advisers get asked by their clients, but I would imagine, “What do you think rates will do next?” or a variation on this theme will be right up there.
Of course, advisers are not soothsayers or time travellers and therefore the expectation that you would be able to call this with any sort of certainty – especially in the current environment – is not really fair. However, I suspect you’ll continue to be asked this by most clients – it comes with the territory.
What we’ve found increasingly is that, when the market seems more volatile (as it does now), landlord borrower clients are torn between a greater degree of certainty over the long-term, versus the lesser commitment of a short-term fix.
And this becomes even more important when we have come out of a period when rates were historically low, through a period last Autumn when the Mini Budget resulted in some extreme movement upwards, into what we have now which appears to be a lot more like a ‘normal’ market, albeit one which has moved out of the former rate ‘thresholds’ we saw for many years prior to 2022.
Let’s not beat about the bush here, for us as a lender it has been a tricky period to get through, particularly in terms of pricing shorter-term fixes but also making sure we have as wide a product range as possible to be able to present to advisers and their clients.
Again, thankfully, the greater certainty in the money markets, and specifically the longer-term view of where rates will be in three/four/five years’ time, has allowed us to revamp our range and to be able to offer a wider array of products for a wider array of landlord clients.
For instance, in March we were able to refresh our entire buy-to-let range including products for expat landlord borrowers, HMOs, large HMOs, short-term lets, and we’ve been able to continue our commitment to offering Green buy-to-let mortgages, which we believe will become increasingly important to the sector as time – and legislation – moves on.
However, back to that quest for certainty, and allied to the fact that five-year fixed money is very competitive at present, we’ve been able to introduce a product which is both fixed for five years, but has no early repayment charge after three.
Again, this comes back to delivering that mortgage payment certainty over a longer time period, but with the option that – should rates move in a downward direction and the landlord’s circumstances or needs shift – the borrower can move to a different product after three years and pay no charge to do so.
Having that degree of certainty, coupled with the flexibility to move in the future, we believe will be attractive to landlord borrowers. It may be that they don’t feel the need to move in three years but the important point is that they have the option to do so.
Plus, in a world in which meeting affordability can be a significant challenge for some landlord borrowers, then it’s important we offer a five-year fix, as the ICR is based on the pay-rate – available at 125% for limited company and basic-rate taxpayers, and 145% for others, even for specialist properties such as HMOs.
Currently we offer this product within our F1 range – for borrowers with an almost clean credit history – and its available up to 75% LTV, with a maximum loan amount of £1.5m, and available for both individual and limited company borrowers. So it should be suitable for a wide range of landlord borrowers, and as mentioned, the ERCs are only in place for those first three years.
Again, this is all about trying to find product options which can work in both the short- and long-term if necessary, providing payment certainty, but giving advisers and their clients a chance to look again at the market, and what it might offer in a few years, rather than the full five.
These can seem like turbulent times but there are ways and means by which that turbulence can be avoided, and as a lender we’ll continue to look at product options which fly both advisers and their landlord borrowers into calmer skies.
Grant Hendry is director of sales at Foundation Home Loans
