10:18 AM, 18th August 2020, About A year ago
With the stamp duty holiday having come into force a little over a month ago, the latest research from Moneyfacts.co.uk explores how the buy-to-let (BTL) mortgage market may react to a UK economy experiencing its first recession in 11 years and also what this may mean for landlords.
– BTL product choice reduced month-on-month, with a fall of 78 products since the start of July, sitting at 1,660, but this is an improvement when compared to the low of 1,455 deals available on 1 May 2020.
– The average two and five-year rates for all loan-to-value (LTV) brackets are lower now than they were at the start of the Coronavirus pandemic, down 0.05% and 0.13% to 2.72% and 3.11% respectively compared to 1 March.
– Conversely, two and five-year average rates in the 60% LTV bracket have increased, now sitting 0.53% and 0.45% above where they were in March, meaning those landlords with higher levels of equity may wish to consider their mortgage options soon, before rates potentially increase further.
|Buy-to-let mortgage market analysis|
|Product numbers||Mar-20||Jul-20||Aug-20||17 Aug ‘20|
|BTL product count – fixed and variable rates||2,897||1,738||1,720||1,660|
|Two-year fixed rates BTL – all LTVs||914||625||625||596|
|Five-year fixed rates BTL – all LTVs||1,000||644||631||612|
|Average rates||Mar-20||Jul-20||Aug-20||17 Aug ‘20|
|BTL two-year fixed – all LTVs||2.77%||2.61%||2.66%||2.72%|
|BTL two-year fixed – 80% LTV||3.56%||3.18%||3.51%||3.58%|
|BTL two-year fixed – 60% LTV||1.89%||2.28%||2.35%||2.42%|
|BTL five-year fixed – all LTVs||3.24%||2.97%||3.06%||3.11%|
|BTL five-year fixed – 80% LTV||3.98%||3.82%||3.82%||3.87%|
|BTL five-year fixed – 60% LTV||2.31%||2.65%||2.73%||2.76%|
|Data shown is as at first working day of month, unless otherwise stated.
Eleanor Williams, Finance Expert at Moneyfacts.co.uk, said:
“Over the last six months, the BTL sector has been a little more resilient than the residential market in terms of product choice. However, this sector has contracted since 1 July, with a fall of 78 products, leaving 1,660 deals available. While remaining some way below the 2,897 deals offered before the crisis took hold, it is important to note that this is still an improvement on the 1,455 products the market had reduced to as of 1 May this year.
“Now that the UK has officially fallen into a recession, some landlords could be concerned regarding the future of their beleaguered sector. However, the increase to the stamp duty land tax threshold will have come as welcome news to many landlords and potential investors in the sector, who may be enticed by the potential savings this offers. Additionally, recent survey information from ARLA Propertymark* indicates that the number of new prospective tenants has risen to a year-on-year high, which could be indicative of the fact that in times of economic uncertainty, people tend to delay making significant financial commitments such as purchasing their own home, which could result in an increase in rental demand.
“Another possible cause for positivity is demonstrated by the overall average rates for two and five-year fixed rate BTL deals. These are 2.72% and 3.11% respectively, which means that both rates are lower than they were in March, signifying that there are still competitive deals to be had in this current low base rate environment and an indication of an appetite to lend from providers in this sector. However, a note of caution, as since 1 August, average two and five-year rates have risen by 0.06% and 0.05% respectively – a fact that may prompt some investors to consider their options before these potentially increase further.
“Five-year fixed rate deals have remained particularly competitive, with both the average for all LTVs and the higher-risk 80% LTV bracket remaining 0.13% and 0.11% lower than the equivalent March rates. Those considering a new BTL mortgage deal may wish to lock into one that can offer longer-term payment stability and protection from future interest rate volatility. Conversely, those borrowers who have a larger 40% deposit or equity will find that average rates have steadily increased since July, with the average two and five-year rates standing 0.53% and 0.45% higher respectively than in March; therefore, those with higher levels of equity may be wise to compare deals carefully.
“Landlords looking to invest in the BTL sector could see this as an opportune time to explore their options, especially if they think that average rates may continue the upward trajectory we have witnessed over the last two months. However, economically, we remain in unchartered waters, with many providers exercising caution in their underwriting, so landlords or potential investors should ensure they thoroughly research and plan ahead in order to protect their investments. In these ever-fluid times, seeking advice and support from independent, qualified professionals could be invaluable in navigating their choices.”
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