Hello readers,
As you will be aware, the Bank of England has (finally) reduced interest rates by 25pts on August 1st, bringing the headline rate down to 5% after several years of increases and then holding at 5% for a total of six times.
This is positive news for homeowners and investors alike, as mortgage interest rates are now expected to drop further.
I was reading a lot of articles leading up to the announcement on August 1st and it was interesting to see how traders were betting on the rate dropping, with an article from The Times having the headline ‘trader bets £2m on biggest interest rate cut in four years’. Now, that’s certainly confidence!
Whether we will see further cuts as the year progresses remains to be seen, however with sticky core inflation sitting a 3.5% we will have to see what the next announcement on 19th September.
What’s interesting however, is how the Financial Times outlines that traders are betting the BoE will actually deliver two quarter point rate cuts by the end of the year, bringing down the headline rate to 4.75% by January.
Better lending conditions
Lower BoE interest rates means easier lending conditions, so lower mortgage rates which is fantastic news.
I don’t think we’ve really seen the full effect as yet, but I have read how HSBC, Barclays, Nationwide and NatWest are now offering sub 4% deals.
The graph below from This Is Money shows where we have been and the keen eye might spot how we are still above where average mortgage rates were in early 2023.
Of buy-to-let rates, Landlord Today provides us with a helpful summary in saying how:
“For UK residents the two-year fixed buy to let rates start from 4.35% for individual and limited company borrowers at a 75% loan-to-value; five-year fixed rates start at 4.96%.”
“Specialist products – including multi-unit freehold blocks, HMOs, holiday lets and investor-led properties – also have reductions from 4.45% for a two-year fixed and 5.06% for a five-year fixed rate.”
It’s certainly a well known fact that increased mortgage rates have cut (and in some cases wiped out) landlord profits. I have read that the average is by around 45%, but that does very much depend on whether rents have kept up with the market.
A sting in the tail remains the lenders fee, which tends to be around 5% and speaking with several mortgage brokers, the general feeling is how that fee is likely to stay.
Buy-to-let lending more than halved dover the course of 2023, with new loans falling from 25,280 on Q4 2022 to 12,422 in Q1 2024 and the number of BTL mortgages in arrears saw a 93% increase by the end of 2023.
It’s a challenging market, with the higher interest rates proving to be a problem for some but an opportunity for others. The next five years will certainly be a turning point!
Increasing demand leading to higher house prices
When we look at more favourable lending conditions, we will undoubtedly see an increase in demand which will naturally lead to higher house prices over the rest of the year.
It’s too early to tell, but there have already been signs of increased demand and of this, Amanda Bryden, head of mortgages at Halifax commented how:
“Against the backdrop of lower mortgage rates and potential further [Bank of England] base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year”
This comment pretty much is backed up by a strong annual house price increase of 2.3% for the 12 months to July following 1.6% for the three-month period from April to June. I’m sure an increase of 2.3% alone will be welcome!
Of demand, the BBC puts it very well in saying that:
“Buyer demand is expected to rise, but this may not be matched with the number of homes put on the market. The result could be higher prices and greater competition between house hunters.”
The housing market is certainly one of demand and supply, with the next few years looking to have strong buyer demand driven by lower mortgage rates and strong rental demand driven by a drop in landlords (leading to higher rental prices).
There’s an air of optimism finally and landlords who have chosen to invest in the past few years should now start seeing those investments start to result in appreciation.
Medway has certainly performed well over the past few years and I don’t doubt that with the ongoing interest from developers and those moving out from London, we will continue to see this for years to come.
Are you planning on increasing or consolidating your portfolio over the coming year? I’d be interested to hear your plans!
Hasan
