Hello Readers,
As you will know, the Bank of England recently reduced the base rate from 4.5% to 4.25% with a close vote of five to four. This is positive news for property investors as it should mean more favourable mortgage rates, however there is mixed opinion as to whether these base rate changes will feed through to even lower mortgage rates than what we have today.
I thought I’d look at this (and answer the above question), but before we get stuck in let’s have a look at where we have been over the past few years as property investors have had something of a ‘wild ride’.
The graph below which covers 2022 to date illustrates few years of BTL mortgage rates from their eye-watering peak. Prior to 2022, BTL rates tended to sit around the 3% mark, but you will see how they have now started to reduce – particularly on a two-year fix.
Are mortgage rates falling and will they drop further?
This is a very interesting question as economists are predicting another one or two base rate cuts (down to 3.75% or 4%) this year, but it does depend who you read as to which side of this prediction you sit and where we are with inflation as the year goes on.
It’s largely expected that there will be one more rate drop, but the second would certainly be nice to see.
What of mortgage rates? Well, looping back to my point above, I have been reading how we should not expect much more in the way of lower mortgage rates this year – this is because the projected drops in Bank of England base rate have already been factored in to fixed mortgage pricing.
There are, however, some fairly good BTL rates now and The Mortgage Works have just released a two year fixed mortgage at 2.99% (up to 65% LTV) or their lowest LTD company mortgage rate of 4.44% (up to 65% LTV) – both with a 3% fee (as far as I understand).
For Medway investors using this new product from The Mortgage Works, this means they may have mortgages such as the below – I have used the maximum LTV and Medway’s average terraced house price of £274,385 as a comparison.
| Type | LTV | Monthly Cost |
| Personal | 65% | £444 |
| LTD Company | 75% | £761 |
These rates are certainly positive and I don’t doubt that we will see more of the mortgage market following suit to compete. A beam of light for property investors that’s for sure!
Personally, I don’t think we will see that much more in the way of lower rates this year and if anything, they might increase a little bit depending on where we are in the second half with inflation.
What does this mean for property investors?
For property investors, I think that this gives some degree of potential breathing room and it will be good news for those who took out a two year fix during the second half of 2023. If you have a remortgage coming up, I’d certainly be looking to speak with your broker and assess what deals are available pretty soon.
What it won’t mean is lower rents. With increased taxation, compliance fees and looming EPC changes (who knows whether – or when – they will actually happen), landlords face increased costs that need to be passed on and tenants are facing issues around decreasing supply due to landlords exiting the market.
It also appears that the higher fees of 3% and 5% are here to stay. Speaking with a few mortgage brokers, it’s generally expected that these won’t decrease but you can choose to add them to the value of your mortgage.
A lesson to be learned from the past few years is to be aware of short-termism. We have had a challenging few years, but things seem brighter. We’re in a completely different place than even five years ago but remember that property has always proved to be a reliable, steady way to grow your wealth over decades.
Do you have any observations? I’d be keen to hear – the best way to get in touch is by emailing hasan@home-share.co.uk.
Hasan