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Hope for mortgage market calm to continue through the year – Fryers

2023 was a volatile year for buy-to-let (BTL) mortgages, owing to a combination of high inflation and consecutive rises in mortgage interest rates.

Base rates have since plateaued, but swap rates haven’t fully settled, with swings continuing to take place, sometimes on a daily basis.

It seems likely that the Bank of England (BoE) will want to be able to express full confidence that inflation is under control before reducing interest rates. 

However, even broader speculation of a potential rate cut has had an impact on markets, which already seem to be factoring the prospect of a cut into future lender costs.


A welcome change in direction 

In the mortgage market, a number of lenders also kicked off mortgage rate reductions during early January. Lenders are now vying with one another to offer BTL rates around four to five per cent, compared with six per cent or higher during autumn 2023.

This has all taken place despite many commentators predicting that there would be no rate cuts until May at the earliest. Indeed, inflation has remained stubbornly sticky since the turn of the year, and February saw an uptick in mortgage funding costs.

Commentators have also pointed to the inflationary impact of recent conflict on the transportation of goods in the Red Sea. According to the International Monetary Fund (IMF), commercial sea passages in the Suez Canal have dropped by 40 per cent compared with peak 2023 levels.

Notwithstanding these external inflationary pressures, recent interest rate reductions have the potential to stimulate the housing market. Commentators seem comfortable that mortgage rates will be lower soon. 

Figures from the Financial Conduct Authority (FCA) show that around one-and-a-half million homeowners will approach the end of their fixed rate mortgage deals — valued at around £140bn — during 2024. 


Uncertainty remains 

In the mortgage market, if rates remain lower than last year, commentators expect some mortgage-holders to be able to access lower interest rates than those who had to settle for six per cent (or more) in 2023.

However, landlords are still experiencing high costs as a result of recent changes, including alterations to tax relief on BTL mortgages.

Recent data from the Deposit Protection Service (DPS) have revealed that, whilst some smaller landlords have been selling up and leaving the market altogether, some larger portfolio landlords are continuing to buy more properties.

Any drop in interest rates could make expanding a portfolio more affordable and encourage larger landlords to continue buying.

Whatever happens, it’s certainly true that, so far, 2024 seems to be proving less turbulent than 2023. 

Paul Fryers, MD of Zephyr Homeloans

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