Buy-to-let mortgage choice recovers
The number of different deals available to people renting out a property reaches its highest level since before the mini-Budget.
The number of buy-to-let mortgages available has reached its highest level since before the mini-Budget as the market continues to recover.
A total of 2,400 different deals are available to people buying a property to rent out, a level last seen in July 2022, according to financial information group Moneyfacts.co.uk.
The average interest rate charged on fixed rate buy-to-let mortgages has also continued to fall.
The typical cost of a two-year fixed rate deal is now 5.81%, while interest on a five-year one has dropped to 5.72%.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “It is encouraging to see buy-to-let product choice gradually recover from the shock surrounding the fiscal announcement.”
Why is this happening?
The choice of buy-to-let mortgages for landlords fell sharply in the wake of the mini-Budget as lenders pulled their deals to reprice them.
This was because former Chancellor Kwasi Kwarteng’s announcement led to a steep increase in government borrowing costs, which in turn impacted the rates lenders pay to borrow money for fixed rate mortgages.
The average cost of the deals that were available also shot up to more than 6%.
But Chancellor Jeremy Hunt reversed most of the mini-Budget measures, helping to restore confidence and reduce government borrowing rates.
As a result, lenders have gradually relaunched their mortgage ranges and reduced the interest rates they charge, despite the Bank of England’s Bank Rate actually increasing during the same period.
What should I do if I need to remortgage?
Unfortunately, despite the fall in interest rates, if you are coming off a two-year or five-year fixed rate deal you are still likely to face a significant increase in your monthly repayments.
For someone borrowing 60% of their property’s value, the average two-year fixed rate mortgage was 2.14% in March 2021, compared with 5.39% now, the equivalent of £542 a month more on a £200,000 interest-only mortgage.
The difference is slightly less for five-year deals, with these rising from an average of 2.74% in March 2018 to 5.22% now, which would increase monthly payments by £413 on a £200,000 interest-only loan.
But these are only average rates, and there are better deals available if you shop around.
Springall said: “The drop in average buy-to-let rates appear more subdued than seen within the residential mortgage sector, but lenders have made moves to entice new business.”
What’s the background?
Higher interest rates not only make a mortgage more expensive to service, they also make it more challenging to pass lenders’ affordability tests.
Lenders use a different affordability test for buy-to-let mortgages compared with mortgages for your main home, known as the Interest Cover Ratio.
Under this test, the rent you receive from the property must be the equivalent of between 125% and 145% of your monthly mortgage interest payment.
If your rent isn’t high enough to meet this affordability test, some lenders will allow you to do something called ‘top slicing’, under which they include some of your income in their affordability calculations.
That said, average rents have also risen at their highest rate for a decade, according to our latest Zoopla Rental Index.
The typical cost of renting a home increased by 11.5% in 2022 to stand at £1,118, with London seeing a 16.1% increase, while in Scotland rents rose by 12.5%.
Key takeaways
- A total of 2,400 different deals are available to people buying a property to rent out
- The typical cost of a two-year fixed rate deal is now 5.81%, while interest on a five-year one has dropped to 5.72%
- However in March 2021, the average two-year fixed rate mortgage was 2.14%, while in March 2018, the average five-year fixed rate mortgage was 2.74%
How much should I reduce my asking price to achieve a sale?
Reductions in asking prices to align with price-sensitive buyers are a common occurrence right now but don't reduce yours by too much too soon....
Reductions in asking prices to align with price sensitive buyers are a common occurrence right now.
Individual property reductions will vary according to each property type, so be sure to ask advice from your agent.
But don’t reduce your asking price by too much too soon, as demand picks up around Easter and the value you get from your home will unlock your next move.
Prices are adjusting across the market, so if you’re selling, it’s heartening to know that the home you want to buy is likely to be reduced in price too.
Asking price reductions - a means to achieve a sale
Cost-of-living pressures and increasing mortgage rates have caused buyer demand to decline in recent months.
The buying power of the average home buyer shrank by a fifth in 2022. Anyone serious about selling their home this year needs to take this shift in buyer circumstances into account and be realistic about how they price their property.
Right now, 4 in 10 properties listed on Zoopla have undergone price reductions of at least 1% and sellers are increasingly working with agents to adjust their prices and attract buyers.
Asking price reductions in February
How much sellers are willing to cut their asking prices by depends on personal circumstances and their local housing market.
The price achieved will ultimately dictate what the seller can buy next.
Last month, over a quarter of sellers opted for larger adjustments, reducing asking prices by 5% or more. This shows us that motivated sellers are open to more serious discounting.
These reductions will naturally equal different monetary values in different areas of the country.
Nationally, we see sellers are typically cutting asking prices by £10,000 to £15,000.
In London, where house prices are higher, sellers adjust their asking prices by £25,000 to £30,000 on average.
In more affordable parts of the country, such as the North East, adjustments between £5,000 and £10,000 are the most common.
Asking price reductions most common in southern England
We are seeing sellers across the country cutting their asking prices.
But we’re also seeing that asking price adjustments are most common in southern England. In London, almost half of properties currently listed on the market have had a price decrease, followed by 44% in the South East and 42% in the East of England.
Average property prices in these regions are much higher than elsewhere in the UK. That means that the impact of higher mortgage rates is bigger, hitting buyer demand harder.
This creates conditions where sellers need to act more decisively to achieve a sale.
Which property types are impacted?
Asking price adjustments are impacting flats to a greater extent than houses. One in 5 flats listed on Zoopla in February had an asking price reduction of at least 5%, while only one in 6 houses had a similar price change.
In recent years, demand for flats has been lagging behind demand for houses.
Apartment owners understand that pricing competitively is even more important for this property type if they want to achieve a sale.
This is becoming more important as buyers are becoming more price-sensitive.
Is reducing an asking price a bad thing?
Not necessarily. Asking price adjustments are happening across the board. As a downsizer or upsizer, this means that repricing will affect not only the property you are selling but quite possibly the one you may be looking to buy next.
A change in asking price can speed up the selling process.
Only 7% of listings that have undergone a price reduction this year have remained unsold by the end of February.
For a third of those properties, a modest adjustment of up to 5% was all they needed.
When adjusting asking prices, timing is important as well. Historical data shows buyer demand picks up around Easter.
Our advice for serious sellers looking to sell in March is to have an honest conversation with your agent to ensure your property is priced at the right level for the current market.
It is welcome to see evidence of greater realism from sellers on pricing. Many sellers will see that recent property value gains equip them with a buffer they can use to unlock sales.
This shows that sellers have got room for manoeuvre without a significant loss to equity that would have been built over many years.
Key takeaways
- Some 4 in 10 properties currently listed on Zoopla have their asking price reduced by at least 1%
- The most common reduction is between £10,000 to £15,000
- Those selling property in the more expensive regions of southern England are more likely to drop their asking price
- Asking price cuts are more common for flats than standard family-size houses
- Widespread reductions show greater realism from sellers on pricing, possibly thanks to the large capital gains made during the pandemic