As a landlord, you may have felt the pinch in recent years, due to changes in tax breaks, increased regulation and what seemed like ever-increasing mortgage rates and stress test calculations, alongside the media amplifying the problems. Combining this with record rental prices has forced a lack of stock to come to the market. With all of this to contend with, it is no surprise that some have been wondering whether there might be easier ways to generate a return on their investment.
However, I believe that 2024 is going to be a turning point for landlords as I think that the scales will start moving back in their favour. I will be hoping that Jeremy Hunt will provide some help in his Spring Budget announcement to encourage the rental sector's growth. Housing is such an integral part of everyone’s lives and happiness and for too many landlords and tenants the current system simply isn’t working.
We have already seen a significant reduction in mortgage costs over the last few months of 2023 and 2024 is going to continue this trajectory. Interest rate swaps (derivative contracts from which fixed mortgages are often priced) have been down as low as 3.2% for 5-year money and below 4% for 2-year money and with strong lender competition better rates are now available, particularly if you can pay a larger arrangement fee. The Bank of England has been making the higher for a longer period message, but the markets are waiting for further good news. With the announcement of the lower-than-expected inflation results in December and more recent announcements on the danger of a technical recession, the markets are predicting that the base rate will start coming down from May. It could even be earlier, with up to 5 quarter per cent reductions priced in, in quick succession towards the end of the year.
Lenders are also looking at innovative products to make things easier for landlords. They do say that “necessity is the mother of invention” and this has been true with some great holistic vision from lenders such as Aldermore who have been looking at how they can help portfolio landlords harness the power of the many to support the few. They have developed products that enable up to 30 properties to be financed on one loan. The total property value vs loan is used to stress test, meaning that you can use the strength and increased equity of part of the portfolio to support others that might not add up in an individual mortgage situation. This principle can also enable far easier capital-raising opportunities as the portfolio is considered as a whole. Not only that but costs are also reduced as there is only one arrangement fee for all properties and no valuation fees. These products are limited company special purpose vehicle (SPV) friendly too.
If you have not built a portfolio yet, then don’t worry as there are other options available from many lenders with low rates and higher fees to help the stress test calculation work or that allow “top slicing”, which means that you can supplement the calculation affordability by showing you have the personal income to support the risk.
Although no one can say for certain how things will turn out this year, I start the year far more confident that the housing market is heading for much better times, despite the industry struggling to agree on how much property value has gone up or down over the last 12 months. I think most people who have insight agree that things will improve in 2024, particularly in the second half. This means that now could be the sweet spot for buying. There is light at the end of the tunnel with property prices right now being at a good value, pre-Spring Budget, and with significantly better rates and products available. We know that even with the many challenges that it has faced, property continues to prove its resilience as an investment choice and with some expert advice you too can find out how you can benefit from the improving environment.
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