The calm after the storm

To follow is a blog from Zephyr’s MD, Paul Fryers, which is specifically for landlords. Given everything that’s been going on with interest rates and the mortgage market over the past few months, we hope you find it useful.  

Mortgages have certainly been making headlines the past few months. Choppy waters in the financial markets, caused in part by the Russian invasion of Ukraine and an economy recovering from the Covid-19 pandemic, were thrown into further turmoil following September’s mini budget. The sudden spike in UK government bond prices drove up mortgage swap rates, causing a tsunami amongst lenders as hundreds of fixed rate mortgage deals were washed away.

At the same time, record-breaking rises in inflation, taking it above 11% for the first time in 41 years, also resulted in waves of Bank of England base rate increases.

The good news is that lenders remain committed to lending, including buy to let mortgages, and some calm is returning. The reversal of the mini budget, appointment of Rishi Sunak as Prime Minister and the autumn statement calmed the financial markets, and lenders have been busy relaunching fixed rate deals.

Whilst the market does start to get back to some normality, it is clearly a ‘new normal’. The low interest rates we have been accustomed to over the last few years have gone, although at the time of writing fixed rates are on a downward trend, following the recent high points of the past few weeks, which should help with interest cover ratio calculations

The Bank of England is signalling there could be further base rate increases in the coming months, as part of its commitment to getting inflation down to the 2% target. However, they are also predicting inflation to fall sharply from the middle of next year, and then the base rate should fall back (Source: November 2022 Monetary Policy Report).

Additional good news for landlords is that there is still a strong demand for rental properties, and the cost of renting is almost keeping pace with inflation. According to the Q3 Rent Index Report from The DPS, there has been a rapid rental growth of 8.68% over the last 12 months, and the past five quarters have seen the biggest % increases in rental income since The DPS started gathering data in 2007.

Who knows what 2023 will bring, as nobody could have predicted the choppy waters caused by the seismic events from the past few months, but opportunities are still available to have a successful property investment business. And rest assured, buy to let lenders like Zephyr are still looking to grow and are committed to supporting you. If you need any help or reassurance about your mortgage(s), get in touch with your mortgage broker. They are there to help you.

Paul Fryers
MD, Zephyr Homeloans

Published: 8th December 2022