As expected, this week the Bank of England announced another increase to base rate. The base rate has now increased to 0.5%, having previously moved from 0.1% to 0.25% in December.
What’s more, there are further increases expected this year.
Some lenders have already reacted to the expectations of base rate rises, increasing what they charge on their buy-to-let products, with others almost certain to follow now that the Bank of England’s Monetary Policy Committee has finally pulled the trigger on a rate increase.
The message is pretty clear – borrowing costs are only likely to rise from here.
2022 – the year of the remortgage
This is particularly notable given the fact that, while 2021 was a year dominated by purchase business, this year is set to see significant levels of remortgaging within the buy-to-let market.
Industry figures have shown that the coming 12 months will see a vast number of five-year fixed rate buy-to-let deals reaching maturity. Back in 2017, the Prudential Regulation Authority introduced tougher new underwriting standards, and the result was a sharp jump in the number of landlords opting for five-year fixed deals in order to pass affordability tests.
To put this jump into perspective, in January 2017 a little over 4,000 fixed rate buy-to-let deals were taken out. Since then it has gradually increased to regularly sit at around 10,000 a month.
These deals will be coming to an end in the months ahead, with landlords facing the prospect of a sharp increase in their repayment costs if they don’t refinance.
Reducing costs by consolidating
For some landlords, simply moving to a new buy-to-let deal will be appropriate. However, brokers may find that their professional landlord clients’ finances are better suited through taking advantage of a portfolio mortgage.
Managing a portfolio in this way can not only mean that the borrower benefits from more competitive pricing, but also enjoy a far more straightforward repayment schedule. After all, it’s always going to be easier to have one monthly repayment to monitor than a handful, all from different lenders, potentially on different days across the month.
Portfolio mortgages can also deliver more flexibility, which is always a feature valued by those who make their money from property investment.
Raising funds for improvements
Consolidating in this way also makes sense for landlords who want to raise funds in order to improve their portfolios.
After all, the clock is ticking when it comes to the government’s new energy performance certificate (EPC) expectations. Currently, properties can be rented out so long as they have a minimum of an E rating on their EPC, but this is being hiked to a minimum of a C rating from 2025. This initially applies only to new tenancies, before being extended out to all tenancies from 2028.
However, an awful lot of rental properties are not at this level yet, and will require various improvements in order to still be eligible to be rented out. A study by Shawbrook Bank found that just under a quarter of landlords say their properties are currently rated a D at best, while previous studies have found significant numbers of investors are completely in the dark about the new requirements.
This presents brokers with a clear opportunity, not only to educate their clients on the new standards their rental properties will have to deliver, but also assist them in finding the finance needed in order to fund the work needed to help them hit that level.
Working with specialists
Placing portfolio mortgage cases can be a complex process, with the products and criteria employed by the lenders active in this area of the market varying sharply.
That’s where working with a specialist distributor can make all the difference. Specialists work on getting these cases over the line on a daily basis and are well placed to ensure that your clients benefit from the best possible portfolio mortgage deal.