If you’re a regular reader of the trade press, you’ll likely have seen predictions that 2022 will be a remarkably busy year for mortgage business in the buy-to-let (BTL) market.
The reason for the spike dates back to 2016, when the Bank of England (BoE) introduced stricter underwriting standards for lenders when dealing with portfolio owners.
Without going into the details of the rules, since October 2016, lenders must perform more robust affordability assessments on homeowners if they have been fixed for less than five years. However, the rules do not have such a significant impact on owners who choose to repair for five years or more.
As you’ve probably guessed by now, landlords have been choosing five-year fixed rates in far greater numbers since this change.
According to UK Finance, only one in 10 homeowners opted for a five-year fixed rate in 2013/14. At the end of 2017, it was more like one in three. In today’s market, it’s even higher.
As a result, there will be a significant increase in the number of five-year fixed rate loans maturing in 2022 compared to the historical average.
This means that this year thousands more homeowners will be faced with three choices: revert to their standard variable rate (SVR), remortgage to raise capital or, if possible, switch to a new deal with their current lender.
With the base rate on the rise, it may be tempting to scour the market for lenders offering the lowest rates.
This may make sense in the short term, but I would argue that owners – and their brokers – are better off taking a longer-term approach.
By this I mean that homeowners, when choosing their next mortgage this year, should also think about the position they will be in when the mortgage comes due – the majority in five years, but many sooner too.
While rates are still low at the moment, the BoE has made it clear that borrowers can expect multiple rate hikes in the coming years.
Fast forward five years and we could see that the base rate – and mortgage rates – could be significantly higher than they are today.
If that’s the case, I imagine there will be plenty of landlords who will struggle to meet rent calculations and affordability checks from lenders.
What options are available to these owners? Not much, other than going back to their current lender’s SVR and having to incur higher monthly repayments as a result.
However, there is a way for owners to dramatically increase their chances of getting a good rate at that time while saving thousands of pounds on fees.
This is, of course, by switching to a specialist lender who offers a product transfer (PT) facility.
First, there are far fewer affordability checks performed on PT customers, which means owners significantly increase their chances of getting a good deal the next time the product expires.
And second, because PTs have much lower fees, owners can save thousands of pounds when refinancing in the future.
Given the direction rates are headed, I’d wager many homeowners would appreciate this peace of mind and would be very grateful to you, their broker, for presenting a mortgage backed by an optional PT proposal.
Phil Riches is Director of Sales and Marketing Keystone Property Finance