BTL product choice remains strong but rates are rising

Prospective landlords or those with a buy-to-let (BTL) mortgage set to mature this year may be interested to see our latest data, which highlights sustained levels of product availability in the sector, but warns that interest rates are rising.

There was a small month-on-month dip in the number of products available to landlords, reducing by 61 to leave 3,374 deals on offer at the start of May. Compared to this time last year though, there are over 1,000 more BTL products available now (May 2021 – 2,302), and availability remains notably above that recorded pre-pandemic (March 2020 – 2,897).

Rising for a third consecutive month to 3.41%, the average overall two-year fixed BTL rate is at the highest level recorded since September 2015 (3.41%). This is 0.51% above where this rate stood at the start of December 2021 (2.90%), prior to any of the four recent base rate increases.

Meanwhile, the average overall five-year fixed rate has also increased for a third month in row and sits at 3.56%. This is the highest since March 2019 (3.58%) and represents a rise of 0.38% compared to December 2021 (3.18%). Landlords with a maturing five-year fixed rate from 2017 may therefore be able to secure a more competitive deal as this rate remains 0.12% lower than where it sat in May 2017 (3.68%).

Interestingly, for what is traditionally viewed as a higher-risk area of the sector, landlords will find the level of choice at 85% loan-to-value (LTV) of 79 products is only one deal fewer than the 80 recorded last month – which was the highest number recorded since May 2008 (104). Also, the average two- and five-year fixed rates for landlords with 15% deposits or equity are the only LTV bracket where rates are lower now (4.80% and 4.93%) than they were at the start of December 2021 (5.17% and 5.22%).

Product availability in the buy-to-let sector remains strong, which will be positive news for landlords who saw volumes fall significantly during 2020. There are now 3,374 deals on offer, considerably above the number we recorded in March 2020 (2,897). However, there are indications of an ongoing disparity in the limited supply of rental property available and the growing level of demand from tenants, with 93 new applicants registering per branch in March, compared to 78 in February, according the latest Propertymark Private Rented Sector report.

Landlords may have a greater choice of products, but the average rates on offer are on the increase. The overall average two-year fixed BTL rate for all loan-to-values (LTVs) jumped up by 0.19% month-on-month to sit at 3.41% - the highest recorded in nearly seven years (September 2015 – 3.41%). However, landlords interested in slightly longer-term fixed rates will find that at 3.56%, the equivalent five-year fixed rate is lower than its equivalent from May 2017 (3.68%), so those with maturing five-year fixed rates may be able to secure a more competitive rate now than they did then.

Rising interest rates and supply of property are not the only factors that may impact landlords in the months to come, as tax changes and the cost of living crisis may already be pinching the potential profitability of investing in property - although recent information from Hamptons suggested that the first quarter of 2022 was the “most active” for landlords since 2016 when the Stamp Duty surcharge on the sale of second homes was introduced. That said, rental reform featured in the Queen’s Speech, highlighting the current challenges facing consumers. Some landlords could feel that, coupled with other changes such as Stamp Duty surcharges and tax burdens, this is creating a “hostile” environment, which could see some consider leaving the sector altogether.  Providers will need to work hard to attract new business in the months to come, so it will be interesting to see how the buy-to-let market adjusts to external factors.

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