Mortgage Turmoil: Is now the time to invest?
Landlords are abandoning the industry
Not because of incoming legislation. Not because of Section 21 changes. Not because of troublesome tenants. Nope. Because of mortgage changes and interest rates making everything feel riskier than a tickling a tiger with toothache.
Now, we can’t have this. SURELY there is light at the end of the tunnel and things aren’t as bad as they seem? We sat down with a panel of experts to get some insight on how things really look for landlords.
In this episode:
- Stephen Smith, non-executive director and consultant in financial services with 40 years’ experience in the mortgage industry gives us the low down on the recent changes to mortgages, and interest rates
- He’ll be talking us through the current climate, and giving us a glimpse into the future (no financial crystal ball here, just good information)
- Sunny Dirmaite, Mashroom’s Business Development Manager for Mortgages explains when to call in the professionals, and how it’s not as scary as you may first think
- Property Tribes Vanessa Warwick talks to us about how to ensure you can protecting your asset once your mortgage is arranged, whilst allowing your tenant to make it home
So, is it really all that bad in the mortgage industry?
It always feels like there’s something changing in the world of rentals doesn’t there? Whether it be rental reform, legislation upheaval or interest fluctuation, there’s always a change in the air.
We caught up with mortgage guru Stephen Smith to see what his take was on the latest news in the mortgage world, and asked whether the financial chaos could finally be settling down a bit…?
‘Even before the disastrous mini budget last autumn, it was expected that interest rates would rise this year. But what was expected was a slower rise to a lower peak,’ explained Stephen.
QUOTE: The mini budget precipitated serious market chaos. Mortgage products withdrawn en masse, and there was a frenzy of repricing. And in the forward money markets, it was like shock therapy and rates jumped far higher than had been anticipated, much more quickly. The market expects probably one further rise, as the bank seeks to control inflation.
Well to our layman’s ears that doesn’t sound overly positive…
‘The peaks are anticipated to be below 5% rather than the 6% that many thought in November last year, but still above the 4% that the markets have been predicting last year’, admits Stephen. ‘That’s the legacy of the mini budget. But base rate rises are not all bad news. They demonstrate to the money markets that the bank is serious about getting to grips with the economy and as a result forward rates start to fall. And then this leads on to fixed rate mortgages becoming more affordable.’
Where does that leave landlords looking to secure mortgages?
With interest rates helter-skeltering all over the place, are landlords looking to secure an affordable mortgage now in a precarious position?
‘There has certainly been an effect of all that market turmoil, mortgage brokers saw a massive decline in business, a drop off of about 50%. It was worse in the buy-to-let mortgage market where the drop was around 75% because customers who didn’t have a time pressure to make a decision simply didn’t,’ said Stephen.
QUOTE: There are now some lenders offering rates below 4%, and this may fall a little further because there’s a sort of mini price war taking place amongst lenders who are keen to lend.
All is not lost then! There are still some deals to be had. It’s just a case of doing a little more research and not necessarily going for what may seem to be the most obvious option.
‘Interestingly two-year fixes are currently more expensive currently than five-year fixes. And with the yield curve in this shape, the outlook is that rates for two and five years are likely to stay at around the current level for perhaps the next couple of years.’
What’s the long-term prognosis for the mortgage market?
Ok, so although it is a little bumpy for landlords, it’s fair to say it’s also a little bumpy for lenders – with everyone feeling the pinch, there may be light at the end of the tunnel… after all, it seems unlikely that the banks will leave themselves in a twist for too long!
‘There are some other more optimistic forecasts and some reports saying that the year has started better, mused Stephen. ‘Estate agents are saying that the traditional selling season started with buyer’s or seller’s being much more realistic about their proposed sale prices. And that will help to calm the market, and the stabilisation of mortgage interest rates is giving confidence to buyers and sellers to get on with their moves.’
‘The trade association that represents lenders has actually used the green shoots phrase in their most recent market tracker. So, I’d say that things are not going to be as bad as perhaps we thought at the end of last year.’
Learning from history
Green shoots are certainly positive, but for those of us that remember previous inflation booms and their impacts on mortgages (anyone remember Black Wednesday in 1992?), are they enough to feel confident in a fluctuating market?
‘The mortgage market is in a different place from when inflation last got out of control, we can always learn from history. Back in the 1990s, the vast majority of borrowers were on variable rates, which meant that their payments changed immediately that bank base rate changed, whereas now the vast majority are on fixed rates. So the impact unwinds over time’, explained Stephen.
‘This year, for people coming to the end of two or five year fixes that were originally granted under 2% who are looking to replace will be looking at rates of 4% or possibly above. That’s a big step up. It’s estimated around 1.8 million customers are going to be refinancing this year. Always speak to a mortgage broker about this rather than just accepting the first offer that your lender may make to you. There are some very good deals available in the market which a good broker will be able to find for you.’
Eternal optimism
‘It’s not all doom and gloom’, laughs Stephen. ‘In recent years, the private rented sector has taken a battering and it’s been tough. It’s not surprising that we’ve seen some landlords sell up and leave the market. And of course, there’s more disruption to come, but there’s one recent report showing that the sector has actually grown in the face of all those problems.’
Landlords are nothing if not fighters. We are confident of this! So, what are Stephen’s top highlights looking forward for the future of the market?
- Shortage of stock. A supply and demand imbalance can lead to higher rental prices (although landlords will have to be careful about tenant affordability).
- Landlords leaving the market. Those less committed to the sector may look to leave, opening the door to anyone looking to expand their portfolio.
- Lender competition. Nothing means a deal better than two suppliers in competition. Lower rates and amended stress testing could be ways in which lenders compete for your business.
When to call in the professionals
Most landlords aren’t afraid of a bit of DIY. After all, who hasn’t tackled the odd bit of maintenance at silly o’clock in the morning?!
But when it comes to mortgages (or any money management) at what stage of the process is it useful to call in the professionals? We sat down with Sunny Dirmaite, Mashroom’s Business Development Manager for Mortgages to get the lowdown on when she thinks it’s best to ask for a little extra assistance.
‘Lenders rates and criteria are always changing – book in with a mortgage professional who can explain all the options to you, she explained. ‘It’s best to get yourself booked in for a chat and to see what products will be suited and you can qualify for because you don’t have to be 100% committed to actually going for the mortgage. It’s always worth having that conversation.’
Feeling uncomfortable about sharing personal financial info with a total stranger? You’re not alone. The process really could save you a fortune and might not be as scary as you may imagine.
QUOTE: The sort of things that a broker would need is information on the property portfolio, because that will have the value of your property, the outstanding mortgages, your rental income. That sort of information you need ready for the mortgage advisor so they can get a bigger picture of your current setup, to of course, tailor their advice.
Protecting your asset
Despite you being the mortgage holder, and owning the property, there are no two ways about it, your property is your tenant’s home.
However, it can be frustrating to be paying a hefty mortgage on a property, and not have it looked after quite as you would hope – or have it looked after a little TOO well.
There is frequent conversation on the Mashroom Landlord Community about how to handle the situation of when your tenants look to make major changes to your property, so we caught up with Property Tribe’s Vanessa Warwick to see what she thought about how to handle this thorny issue…
‘When it comes to landlord and tenant relationships, the mantra is communication,’ said Vanessa. ‘If a tenant wants to improve their rental property it’s actually a very positive sign – it potentially means that they want to stay long term and put down roots.’
QUOTE: From the landlord’s point of view, they really do need to understand exactly what the tenant has in mind – it could range from maybe changing a few kitchen cupboards to doing a full bathroom refurbishment.
‘I think if there’s clear lines of communication between landlord and tenant, and if the landlord feels happy that the tenant is going to do it to a good standard, and not damage the property in any way or reduce the value in any way because of these changes, then it’s a good thing.’
What if the landlord doesn’t agree?
One person’s love is another’s loathe though. What is the fair thing to do if you and your tenant can’t see eye to eye? Who has the casting vote? After all, you are paying the mortgage, but it’s the tenant’s home… and what happens if you have concerns that the tenant is going to go ahead and do it anyway, even if you say no!
‘Midterm property inspections are so vital because if the tenant is making changes, if something’s going on at the property that isn’t authorised, a midterm property inspection will notice that you’ll be able to nip any problems in the bud’, said Vanessa.
‘I would recommend that you always get everything in writing. So that there is an audit trail between what you agreed, what the tenant agreed, what your expectations were and so on. Having an audit trail can help minimise problems later down the line.’
You can join the conversation with Vanessa and the Mashroom team, as well as hundreds of other landlords on the Mashroom Landlord Community on Facebook. We’re all chatting and love to hear your thoughts on everything rental!
Landlord News
We’ve been talking about how the buy-to-let market is looking brighter – and hopefully the predictions will be correct! In the news this week, the stats certainly back up our guests guesstimations.
Money comparison experts have said this week that the increased number of buy-to-let loans available is showing a really encouraging sign of recovery.
- There are around 2,400 buy-to-let loan products available at the moment
- This is the highest number since July 2022, when there were 2,746
- This time last month there were only 2,246 available, so 150 more have hit the market in just a month!
It may not seem like much, but this creep up is showing a renewed confidence in the market from the lenders – let’s just hope they’re putting their money where their mouth is!
One landlord who’s not feeling the financial joy is Luton-based Poplar Homes Ltd and its director Sarfraz Yousaf. Yousaf was hit with a fine of £5,716 after Luton Borough Council received a complaint about a property which was plagued by a litany of issues, including:
- No fixed heating provision
- No hot water
- Inadequate water services
- No smoke detectors
- Inappropriately connected electric cooker
- When asked to produce documentation, including a Gas Safety Certificate and then EICR, the landlord was unable to do so
On top of the fine, Yousef has been tasked with carrying out all the required improvements to the property, and the council have pledged to monitor the situation to ensure that the improvements are carried out.
Councillor Tom Shaw’s Luton Borough Council portfolio holder for housing, said: ‘When we hear of a complaint against a private landlord we will always investigate the situation. Part of this requires us to be satisfied that the necessary documents are held and failure to demonstrate that is a serious offence in its own right.’
‘The quality of the property investigated was not of a sufficiently high standard and we have demanded that the landlords resolve this as quickly as possible. Being a landlord is a serious business. Tenants deserve to be treated properly and we will do all we can to make sure this is the case.’
So, take heed of this monumental (and costly) slip up. Clearly, ensuring that your property is well maintained and safe for your tenants is key, but making sure that your documentation is up to scratch is really important too. Mashroom’s document storage tool is free, and available to assist should you need a little help getting your paperwork in order.
We’re dreaming of spring here at Mashroom, and have holiday cottages by the sea dancing through our minds… coming up on March 24th we’ll be chatting to solicitor Adrian McClinton about the pros and cons of holiday lets instead of residential lets, which is the easier and more profitable option? Register now to join us!
We hope to see you then, and in the meantime, don’t forget to follow us online and to join our Facebook community!
See you then!
