What can landlord borrowers expect from the market?

Lenders have been dropping their mortgage rates, but inflation has had a small uptick. With the next Base Rate vote on 1st February, what can landlords and property investors expect, when it comes to borrowing? Jorden Abbs, chief executive of specialist broker Commercial Trust, gives his view.

2023 was turbulent for buy to let and commercial mortgage rates, just as it was for the residential market, albeit bridging loans were impacted far less – good news for those doing building renovations, or buying at auction.

There are a lot of complex factors at play and change has been coming thick and fast.

Whilst January 2024 has brought some positive signals for property investors, it is important to remain close to mortgage news, so you can plan investments and renewals wisely.

What is the position for mortgages in the commercial space right now?

The fight against rising inflation caused the Bank of England to drive up the Base Rate, with fourteen increases starting at the Monetary Policy Committee (MPC) vote in November 2021, and the last rise in August 2023. Buy to let and commercial mortgage interest rates increased as a result.

Subsequently the Base Rate held for the September, November and December 2023 MPC votes.

The upshot of this was that the money markets gained in confidence, and future projections for interest rates (SWAP rates) came down.

All the while, overseas conflicts have been rumbling, and remain a global economic threat.

Commercial mortgage and buy to let lenders drop rates

January has brought with it the usual post-Christmas upswing in activity, and this has been fuelled by lenders within the buy to let and commercial mortgage markets bringing down their rates.

Borrowers coming up to renewal dates have been eager to see rates come down and use that to their advantage.

Last week, two significant commercial mortgage lenders dropped interest rates for business premises borrowing, as well as a large number of buy to let mortgage lenders doing the same thing.

One of the biggest buy to let lenders in the space even went so far as to reduce rates twice within a few days.

There has been great news for personal and limited company borrowers alike.

Don’t take rate drops for granted

There is without question a lot for landlords and property investors to celebrate around rates right now, but I have a few words of caution to share.

When lenders put out extremely competitive products, the swell of new business instantly grows. Enquiries can double or triple overnight, and their service teams have to keep up.

It is vital lenders maintain service levels, and there are also limits on how much they can lend in total. So, at any time a lender can withdraw products that are driving high volumes of enquiries for either of these reasons. They can then put rates up, to stem the flow of enquiries through their door.

Case in point, one of our buy to let lenders announced in the morning that a product would be unavailable that night.

That is literally as quickly as it can happen, and even as a specialist broker we won’t get more notice than that – not least because it is highly likely these decisions have to happen in a relatively impulsive way for the lender, depending on the volume of business growth they get, versus expectation.

And, we may not be out of the woods yet

I mentioned earlier that SWAP rates had been coming down, I’m monitoring them daily at the moment. Back in mid-December, 5 year SWAPS were down at 3.5%, but a month later and they are edging up – currently sitting at 3.7%.

This means that the money markets may be expecting a change in direction and for interest rates to rise again.

Consumer Price Inflation went up from 3.9% in November to 4% in December, where wide expectation was it would decrease again.

Now of course, these trends are rarely linear throughout, and a small change like this is not a huge issue, not enough to make me think a Base Rate increase would be likely on the 1st of next month; but, if it is followed by more of the same, we may see mortgage rates rise again.

For context, at the last three Base Rate votes six MPC committee members have voted to hold the Base Rate at 5.25% and three have voted for an increase to 5.50%.

We have already seen one of the major specialist lenders reprice and put their rates up as a result of SWAP rising.

What can borrowers do to protect themselves?

On the buy to let mortgage side, lenders offer a flexibility on securing their products. An application for a buy to let mortgage can have an expiry of three to six months, meaning you can secure a deal right now for a renewal that may not be due for some time.

Commercial lenders offer slightly narrower terms, on average a mortgage offer has a three month expiry, so if you are borrowing for a property a business will operate from, you have less time to work with.

My closing advice to you is simple – if you are looking to invest, or are coming up to the expiry date of your current mortgage deal period, get in touch with your advisor now. Get a deal locked in. If a lender reduces rates whilst you have an application going through, we can always get your application moved over to a new rate with that lender.