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Buy to Let Mortgage Market Update

Buy to let mortgage update

In the wake of the Government’s mini-budget announced at the end of September, there has been a lot of volatility in the mortgage market which has left our clients with some unanswered questions.

One of the questions clients have asked us: “is this like the credit crunch of 2008?”. First of all, banks are still very well-capitalised and have plenty of funds available to lend. The question is, at what rates do banks lend to maintain their profitability?

To provide long-term 2,3 and 5-year mortgages lenders benchmark their mortgage rates off long term market rates called “swap rates” and these rates have increased significantly since the announcement of the mini-budget.

Why are Mortgage Rates increasing more than Bank of England Base Rate?

Bank of England Base Rate is currently at 2.25%. The reason mortgage rates are higher than this figure is, that to offer a 5-year fixed rate, lenders must fix their own costs, and these costs of funds have increased significantly more than Bank of England Base Rate.

The reason for this, is the market feels inflation will be higher than what has been forecast, and therefore the Government is working closely with Capital Markets to provide some clarity and certainty to bring the long-term interest rates down.

What should I do if I am coming to the end of my fixed rate?

If you are coming to the expiry of your fixed mortgage rate and are wondering what to do next, please get in touch and we can explore your options.

Below are some of the options we can explore.

  • Remain on your current mortgage product which will switch to the lender’s reversion rate. This rate is typically higher than your fixed rate and you can find out your reversion rate by looking through your original mortgage offer or calling the lender directly
  • Carry out a product switch if your current lender offers these types of mortgages. This is where you switch over to a new fixed rate without increasing your mortgage balance
  • Refinance with a new lender on another fixed rate product
  • Consider refinancing onto a tracker product for the short term with no early redemption fee so that if interest rates do start to come down, you can refinance onto a cheaper product without incurring any exit penalties

What is our advice?

If you do not need to take any immediate action, our advice would be to wait until the Chancellor announces the fiscal plan which is expected to be on the 31st of October.

The fiscal plan will set out how the Government plans to pay for the tax cuts which were announced at the end of September. If the outcome of this announcement is positive, we could possibly see interest rates come down slightly, however, this cannot be guaranteed.

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Megan Parkin

Senior Property Finance Adviser | megan@advocatefinance.co.uk | 01206 544333
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Picture of Megan Parkin

Megan Parkin

Senior Property Finance Adviser | megan@advocatefinance.co.uk | 01206 544333