The buy-to-let sector hardly needed any further stimulation, but received another shot in the arm recently courtesy of new Bank of England governor Mark Carney’s maiden Inflation Report. His pledge to keep interest rates low until unemployment falls to 7% – a guarantee the Monetary Policy Committee expects to hold until mid-2016 – means that not only will lenders be keeping rates keen which will benefit landlords, but also means that with savings rates likely to remain anaemic, property will continue to represent a more attractive investment. While any type of investment remains something of a risk, the rate guarantee greatly reduces the short- and medium-term exposure hazard for property investors.
Of course, the Bank’s forward guidance won’t just benefit the property investment sector and has positive permutations for a number of demographics, not least first-time buyers and business owners who can plan for the future with a little more confidence. The cynical could suggest the measure is an early attempt by Carney to get British industry and the public onside, but political gesture or not, anything that suggests stability at a time of uncertainty should be grasped with both hands. Suggestions that our economy has emerged from its slumber are still (in my opinion) somewhat premature, so having a firm hand on the tiller should help complete the recovery.
It will be interesting to see just how much lower mortgage rates can go given that there are some truly competitive deals already available, but lenders will no longer be able to hide behind possible future rate rises for as long as the guarantee is applicable. There are certain caveats included within the promise – that continued low interest rates do not pose a threat to financial stability, increase medium-term inflation expectations or impact on the inflation forecast falling below 2.5% within the next two years – but these are simple safeguards rather than any attempt to renege on the pledge.
Property investors have a number of variables and factors to consider when planning their short and medium-term strategies, but removing some of the uncertainty around interest rates gives them one less thing to worry about. We’ve already seen broker confidence in the buy-to-let market soar to almost perfect levels – a recent survey by The Buy To Let Business revealed that 95% of intermediaries think now is a good time to invest – and lending figures show that this conviction is translating into increased activity with the Council of Mortgage Lenders revealing the market has reached its most productive point since 2008.
We may still be some way short of the levels seen in 2007 and before, but with a year-on-year increase of around 20%, the market is practically unrecognisable from that which limped through the global financial crisis. While accidental landlords helped sustain the market through this lean spell, the recovery of the housing market means those who never intended to become property investors are now free to sell their properties, leaving the sector to the serious professionals. Given the number of stars that have aligned for landlords at the minute, these are looking increasingly like stellar times for the buy-to-let market.
Bob Young is managing director of CHL Mortgages