With the fresh new year, thoughts of course turn to planning for what might be coming over the horizon over the course of the next 12 months.
For the buy-to-let market certainly, there have been some significant ups and downs, particularly for landlord borrowers who have had deals ending in the last few months, and indeed who are looking at what finance they can secure in the future, from both a purchase and remortgage perspective.
It will be obvious to all that we had an interest rate ‘breakout’ during 2022 and, while the short-term outlook is much better than it was post-‘Mini Budget’, it is still likely to mean borrowers paying more for their mortgages, and viewing products with a different price range than they have been used to in the last few years.
That said, and as mentioned, we can see positives. Swap rates have dropped in the last few weeks, the outlook for rises is not what it was, lender competition is strong, and a new year tends to give all parties a chance to reset, refocus and plant an early flag in the ground in terms of an updated product proposition.
We are yet to see a big return in terms of shorter fixes, but that will come, and with more trackers/discounts now on offer plus a growing pressure on longer-term fixed-rate pricing, this should give advisers and their landlords more options.
What will continue to be a concern however is landlords’ ability to marry up growing mortgage costs – and others to be fair – with rental yield, particularly in a PRS where supply is tight, demand is strong, but tenants are also having to deal with the increased cost of living, and everything that comes with that.
There is a compromise to be found here, and we know many landlords will make it work for all parties given the economic situation, but there also has to be an understanding that properties which cost more to offer than can be recouped through rent, are not likely to stay long in the PRS.
For 2023, that has to be a priority for those making policy that affects the PRS. I know that landlord associations have been writing to Michael Gove to point out the issues at the heart of the PRS, and to point out that a PRS in which supply continues to fall, is not going to be able to meet the needs of UK housing, and makes the situation for both landlords and tenants even worse.
For instance, in Scotland, its government has recently followed up the ongoing rent freeze – due to finish in March 2023 – with an increase in its version of stamp duty, the Land & Buildings Transaction Tax (LBTT), for buy-to-let and second home purchasers from 4% to 6%. There are politicians in other parts of the UK also calling for rental freezes – most notably the Mayor of London, Sadiq Khan.
However, we must seriously ask whether taking that level of control away from landlords is the answer, especially if they are having to pay more for all costs, including mortgages. There has to be an understanding of what that means, what it could precipitate in terms of landlords selling up, and what the further consequences of that will mean for tenants.
It might well be that politically the long-term strategy is to downsize the PRS – which currently provides 20% of all UK households with their housing – in order to open more properties up to purchase by owner-occupiers. However, if that is the case, there must be an understanding that in order for properties to be purchased by more of the population, it requires a number of other things to be in place, not least good access to affordable, high-LTV mortgages which tend to be required more by first-time buyers.
When this is not so readily available, and we can hardly say there is a surfeit of such mortgage finance at the moment, plus you have other issues like being able to save enough for a deposit, then you need a ‘back-up plan’. In other words, a place for people to live while they work themselves into a position to purchase. Which leads you to ask the question, whether a weaker PRS is truly good for the housing needs of UK citizens? Where does the housing come from, if not from the PRS?
The answer is a tricky one for governments, because there is certainly not enough social housing available to fill any gap left by a falling supply in the PRS. Which leads you back to the PRS, which means recognising what the PRS is currently doing, but also working out what it needs to be doing in the future.
It is of course a balance that needs to be achieved, weighing up the housing needs of a population which of course have aspirations to become homeowners against various other factors which mean that might not be achievable in the short-term.
Certainly, we will do all we can as a specialist buy-to-let lender to provide advisers and their landlord clients with what they need to keep invested in the PRS, but also keep investing to make this new year as strong as possible for all our businesses.
Mark Whitear is director of commercial development at Foundation Home Loans