In the lead up to any Budget announcement, there is a degree of speculation around what measures might be introduced and specifically how they might impact on the mortgage and housing markets.
This month’s Budget to be presented by Chancellor, Philip Hammond, is no different but comes with the added pressure of the Brexit negotiations – which appear to be as far from concluding as it was possible to get – and the huge degree of uncertainty around whether a ‘deal’ can be arranged, whether it could get through Parliament, the ramifications if it can’t, and what a ‘no deal’ might look like for the UK’s economy. If anyone thinks that might deliver a ‘soft landing’ they should heed the words of one anonymous Cabinet Minister who voted Brexit and is convinced that a ‘no deal’ situation will inevitably mean a recession.
Also, for those who think the mortgage and housing markets might remain unscathed from such an outcome, the time to think again has definitely come. Recessions tend to mean job losses, and with many overseas businesses suggesting they’ll be unable to trade in the UK with ‘no deal’, we could be looking at a serious setback. Let us also not forget that the current UK employment figures are (even with some unorthodox accounting) very good at present.
This threatens to undo all that good work and of course, when people lose their jobs, there is a much greater likelihood that they will miss mortgage payments, plus we could see a significant impact on house prices – the Bank of England is stress-testing 35% falls for a reason even if that type of fall is incredibly unlikely – and we could see recent purchasers falling into negative equity. Plus, we could find the Bank itself seriously hampered in terms of any attempts to counter such an economic slowdown.
All in all, it currently does not look pretty, and within this ‘doomsday scenario’ we have a Budget to contend with, the timing of which might seem off, especially when you consider the fact that no deal between the UK and the EU seems likely over the next couple of months, and indeed many commentators believe if any deal is to be done, it won’t be concluded until the very last minute, which is the end of March in 2019.
For housing and mortgage stakeholders, the Budget could deliver some very ‘light relief’ – as always there are suggestions that stamp duty could be tinkered with again. Let’s hope any tinkering is not to the further detriment of private rental sector landlords, many of whom might not be able to put up with any further intervention in the sector, especially ones that make their investments even more unprofitable.
If you’d like an idea of how the buy-to-let market has been impacted, you only need to look at the record low rates currently being offered on many products by buy-to-let lenders. As demand for mortgages – particularly for purchasing – has tailed off, lenders are having to cut their rates in order to entice that business in. There is however good news on two fronts here – firstly, we have a very strong buy-to-let remortgage market, and secondly, if brokers do have any landlord clients seeking purchase mortgages then now is the time to secure them a very good rate.
Recent figures from Moneyfacts suggest that the average two-year buy-to-let fixed rate has fallen from 3.09% in 2016 to 2.9% today, while five-year fixes are down from 3.77% to 3.4% over the same timescale. Rates can of course be found which are considerably lower than this, especially if the borrower has a larger deposit, and if they are willing to move to a five-year term, a number of lenders can offer strong rental cover criteria, plus top-slicing, etc, which might allow these landlords to secure bigger loans.
In that sense, the buy-to-let mortgage sector is a borrower’s market at present however the big question is around how any future intervention might impact on landlords’ ability to stay the course, especially if they are in the ‘amateur landlord’ bracket. Philip Hammond might decide to let sleeping dogs lie in this Budget, however beating landlords with a regulatory stick seems such a populist thing to do, he might also think he can’t miss the opportunity.
We therefore await this month’s Budget with some trepidation, hopeful that common sense might prevail but also knowing full well that there are far bigger obstacles to be overcome, and for many people these might prove to be insurmountable.
Richard Adams is Managing Director of Stonebridge Group