Advice to Landlords: Plan Ahead in Volatile Markets

We seem to be living in a continuous stream of ‘once in a lifetime’ events. From Brexit, to the pandemic and now the conflict in Ukraine, political and economic stability seems like a distant dream. 

For buy-to-let – and mainstream - mortgage lenders, the current situation is arguably the most difficult to manage of all recent events due to the volatility in money markets. Until recent months, lenders and borrowers benefitted from an environment of low and stable interest rates for over a decade.

As the Bank of England battles raging inflation, the money market’s expectation of where the Bank’s future Base Rate may be heading has seen more ups and downs than a rollercoaster, but mostly moving in an upwards direction. 

Lenders use something called the Swap Rate to help them price today’s mortgage products. Swaps are a gauge of where the market thinks rates will be at the end of the given period and they have been rising throughout the summer, accelerating in the latter half of August.  

As of the time of writing - late August - Swaps are priced at 3.85 per cent in two years, 3.35 per cent in five years and 2.95 per cent in 10 years. Two year Swaps are up by 135 basis points in August alone, highlighting the scale of the issue. 

The volatility in the Swaps Market presents challenges for lenders in two key areas – pricing and service levels. 

Pricing a mortgage is tough in unstable conditions. Mortgages launched at the middle of August could be loss making for the lender if they are still available at the end of the month, based on the rising Swap rate. 

Therefore, the market is seeing products launched and withdrawn fairly quickly, which can be frustrating for landlords and brokers. We have also seen some lenders temporarily withdraw from the market as they reprice their mortgage range. 

At Paragon, we have ensured that a core range of products are available to our customers and supplemented those with short-term offers or limited editions. 

The other area where the industry is experiencing challenges is service levels as landlords rush to fix their mortgage before expected increases in the BoE Base Rate over the winter months. With some experts forecasting inflation of between 18 and 22 per cent, further rises in the Base Rate is inevitable. 

The average two-year fixed-rate buy-to-let mortgage deal charged 2.9 per cent before interest rates began rising in December, according to analysts at Moneyfacts. By the beginning of August, this had climbed to 4.04 per cent. Meanwhile, the average five-year fixed rate deal has risen from 3.18 to 4.49 per cent in the same period. 

Again, some lenders have sought to ease pressure on their operations by turning off the tap of new business or slimming down their product range. 

Some non-bank lenders have halted lending altogether. The number of available buy-to-let products has reduced by approximately 1,000 since the turn of the year. That means more business is being funnelled through to fewer lenders.

At Paragon, we have put in place plans to maintain our service levels and we are pleased they are holding up. However, we are not complacent and we know that this pressure will remain for some months to come. 

My message for landlords seeking finance is to make sure you plan ahead, work with your broker to ensure you are prepared with the information that the lender may require and act with pace if there is a specific product you may be interested in. 

Demand for buy-to-let remains strong across both purchase and, particularly this year, remortgage. Lenders are under pressure and, as a sector, we are doing our best to ensure the market operates smoothly. 

* Richard Rowntree is managing director of mortgages at Paragon Banking Group *

Want to comment on this story? Our focus is on providing a platform for you to share your insights and views and we welcome contributions.
If any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals, then the post may be deleted and the individual immediately banned from posting in future.
Please help us by reporting comments you consider to be unduly offensive so we can review and take action if necessary. Thank you.