Speaking to a lot of my landlord clients, it’s clear that the stamp duty holiday is now more of a hindrance than a help. When it properly ends on 30 September, will property investment pastures be greener?
In addition to the stamp duty holiday, a heady combination of pre-Brexit build-up and changes in people’s housing priorities in light of the pandemic has fuelled a frenzy in the housing market. Just how frenzied is best illustrated by these statistics:
- Annual house-price inflation is at its strongest in nearly seven years
- The average house price is £261,743, a new record high
- House prices have increased by 9.5% annually, 2.4% over the past quarter and 1.3% from April to May (most recent statistics available at the time of writing).
The enormous demand has driven up prices, month after month, which begs the question: will prices crash when the stamp duty holiday is over?
The usual expert views are mixed; besides, it’s always challenging to call exactly what will happen in the housing market over the next 12 months. However, based on the continued shortage of stock, sustained demand despite huge price elevation, lenders continuing to open up criteria and accept higher loan-to-value applications, and government schemes to assist homebuyers, a crash is unlikely. We will see isolated cases of sales falling through and bargains on offer to save purchase chains, and a dramatic slowdown in price growth, but I believe the upward trajectory will continue.
Pre-Covid levels
After the mortgage rate turbulence at the height of the pandemic, I’m pleased to report that things have, more or less, returned to pre-Covid levels. Over the past quarter, buy-to-let (BTL) mortgage rates have been steadily coming down, notably in the specialist end of the market. While we’re still not seeing competitive pricing at the 80–85% LTV space, 60–75% LTV offers a wide range of low and accessible options. BTL interest rates currently start from 1.74% at 75% LTV!
However, it’s worth noting that, although it’s lovely when interest rates are low, there is a limit to how low they can go. I’d say we’re pretty much at rock bottom for pricing. The good news is, as the purchase market cools a little, lenders are unlikely to rush rates up and narrow criteria because they’ll want to continue enticing new and returning clients.
Enormous demand has driven up prices, month after month
That said, with inflation being what it is at the moment, the knock-on effect on the money markets means that we may, in the not-too-distant future, see rates start to creep back up. If you’re planning a purchase or have a remortgage coming up, watch this space! Remember, you can secure a remortgage rate up to six months in advance, so there’s no harm in being the early bird and catching the proverbial worm.
Besides lowering rates, many lenders have been tinkering with criteria, broadening things to include more landlords and property types. This can only be a good thing, mainly for landlords but also as a signifier of confidence. Criteria have opened up hugely compared to this time last year, especially for those trying to finance complex properties like houses in multiple occupation and multi-units. While rates may go up, I don’t see any reason for a reversal in criteria restrictions in the months to come.
The BTL mortgage market has, quite rightly, started to try and address the 64 million tonnes of CO2 emitted by inefficient housing each year in the UK. At the time of writing, a total of five lenders offer borrowers some kind of ‘green incentive’, via either a (re)mortgage or a further advance. The further advances tend to require one to spend all the funds on energy-efficient improvements, or offer a discounted rate to those already in the Energy Performance Certificate (EPC) ‘A’ to ‘C’ bracket. Rates start from a competitive 1.49% at 75% LTV, so are undoubtedly worth investigating.
Many lenders have been tinkering with criteria, broadening things to include more landlords and property types
In my opinion, the full mortgages are slightly more accessible and useful. Similar to the further advances, they offer a discounted rate for a property that has received an EPC rating of ‘A’ to ‘C’ in the past 12 months.
So far, lenders have specified that these properties be at least two to five years old. Doing so rewards landlords who’ve made improvements to older properties, rather than those who purchase new-builds, which you’d expect to have a high EPC rating. Mortgage interest rates start from 2.99% for a two-year fixed term at 65% LTV, and there are products available to both individual and limited company applicants.
So, will the grass be greener after the stamp duty holiday? Not really, but things will at least stop rocketing so quickly. Will we see a dramatic change in BTL mortgage rates? Not immediately, but increases are coming. Will the private rental sector go greener? I hope so!
Jeni Browne is business development director at Mortgages for Business
