How many of you have seen your landlord clients hold off on their next mortgage deal, desperately hoping for a drop in rates this summer?

Speaking to my industry peers, it seems we’re all in the same boat.

With the ‘promise’ of the first base-rate drop since March 2020, clients are reluctant to fix onto a new deal and miss out on the wave of cheaper products that apparently will follow.

Of course, a ‘wave’ of cheaper mortgage rates is unlikely; a gentle trickle is more probable.

At the time of writing, we’re still holding out for the highly likely base-rate reduction in June. Although this is what we (and many other industry experts) expect, we also know mortgage lenders won’t rush to drop their product pricing by 2 to 3 percentage points, back to the historical lows we saw post-pandemic.

If I can encourage you to do anything while you wait, it’s to review your clients’ portfolios

As swap rates continue to move up and down erratically on a daily basis, it’s more likely that the lenders that have been holding out will slightly reduce their pricing. Many have already started to soften pricing in the weeks leading up to the June meeting of the Monetary Policy Committee, although we’ll have to see how the small matter of the general election impacts this.

Regardless, it’s important to emphasise to your clients that rates are competitive; this is our new norm.

The slowdown in landlord activity in the mortgage market has seen remortgage and product transfer activity surpass purchases this year, as it did in the latter quarters of 2023. Mortgage Finance Brokers data shows that 81% of transactions on standard buy-to-let (BTL) property in the fourth quarter (Q4) of 2023 was for remortgages, compared to just 19% for purchases. This trend continues across all property types.

Let’s look forward to a much brighter, busier second half

One of the significant shifts was in commercial property, from an almost even split of 60% remortgages and 40% purchases in Q1 to 84% and 16% in Q4. In contrast, house-in-multiple-occupation (HMO) purchases increased to 39% in Q4 from 25% in Q1, reflecting residential landlords’ shift towards higher-yielding property types.

Looking forward, it’s clear we’re still in the liminal state where landlords reaching retirement age are looking to divest. The Mortgage Works’ (TMW) latest Buy to Let Barometer shows three times as many landlords intend to sell in the next three months compared to those looking to purchase (32% versus 11%).

Let’s be clear, though: not all landlords are selling up.

We need to hang in there a moment longer while our landlord clients wait to see what competitive deals they can find (and probably the election outcome)

With the pace of annual rental growth down month on month (6.4%), we’re all feeling the strain a bit from increased mortgage costs. In 2023, the average yield on ‘vanilla’ BTL properties was 6.22% — significantly lower than what you could expect from a more complex property such as an HMO or a multi-unit freehold block. Doesn’t it make more sense that landlords are simply selling less profitable property to boost their cashflow and maintain a healthy, profitable portfolio, rather than leaving the market altogether?

Back to TMW’s Barometer: the report shows landlords will search for their next mortgage rate in the next 12 months; 48% plan to use BTL finance to fund their next purchase, and a further 44% plan to remortgage or take a product transfer. Perhaps unsurprisingly (given how the market is going), 33% hope to secure a two-year fixed rate, compared to just 25% for a five-year fixed.

It’s clear we’re still in the liminal state where landlords reaching retirement age are looking to divest

It is more important than ever to discuss our clients’ property investment plans and offer them the guidance they need. We must champion our landlords in any way we can during this tighter period and help them through to the other side.

Winds are changing

As I mentioned, I’m writing this at a time when we’re still expecting the first base-rate decrease, in June. The latest inflation figure (2.3%) shows we’re creeping closer to the Bank of England’s target. Looking back at when inflation peaked at 11.1% in October 2022, you really appreciate how much volatility we’ve experienced in such a short period.

But the winds are changing, and we need to hang in there a moment longer while our landlord clients wait to see what competitive deals they can find (and probably the election outcome).

A ‘wave’ of cheaper mortgage rates is unlikely; a gentle trickle is more probable

If I can encourage you to do anything while you wait, it’s to review your clients’ portfolios. Not only can this offer up some different property investment opportunities for your clients to explore, but it will also put you at the forefront of their mind when they start to consider a new mortgage deal.

So, let’s continue to embrace the everchanging face of the mortgage market, and look forward to a much brighter, busier second half of the year.

Jeni Browne is business development director at Mortgage Finance Brokers

This article featured in the June 2024 edition of Mortgage Strategy.

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