What may impact BTL and Resi markets in 2025?
Guest Blog Writer: Paul Huxter, Head of Intermediary Sales & Distribution, at West One
7 October 2024Many predicting BoE rate cuts in Q4 and early 2025, and with Bank of England Governor Andrew Bailey speculating on being a “bit more aggressive” with cutting rates. Has the Buy-to-Let and Residential market evolved away from the ‘traditional’ lenders to more specialist lenders?
Drivers for the Residential Mortgage Market
In the last two years, many have felt the impact of higher mortgage and inflation rates that have impacted the affordability for buyers along with potential credit complications that many have or are experiencing.Expectations on what is 'affordable' can be impacted by various factors which may fall outside societal norms of dual household incomes, stable 9-5 employment, good credit, with a track record of mortgage payments without any credit blips.
Saying "Yes" to impaired credit and adverse
West One approaches Residential mortgages with real life in mind. The lending criteria and products are designed to reflect this, meaning adverse credit does not need to be an obstacle to homeownership.A key to this is not operating credit scoring but assessing each case on its own merits. Particularly, when specialist lenders aim to provide flexibility within product ranges, including product options for those with:
- Unsatisfied defaults & CCJs
- Utility & comms accounts ignored even if defaulted (all products)
- Unsatisfied defaults & CCJs of more than £500 each accepted
- Mortgage arrears accepted, even if within the last 12 months
- Missed/late unsecured credit payments accepted
- Are first-time buyers coming back into the market
Has wage inflation seen the rise of First-time buyers?
First-time buyers, arguably the most impacted and reactive group in the market can be key to the housing market growth.Despite wage inflation slowing in 2024, the preceding years saw substantial growth providing higher incomes. This did impact the rate at which house prices rise but with house prices levelling off due to the higher BoE rates.
The higher prices and lower LTVs offered by lenders made it a challenge for first-time buyers to enter the market unless they had substantial deposits. To alleviate this challenge West One recently introduced a limited-edition 95%LTV product for first-time buyers.
As speculation around cuts to BoE base rate for Q4 and 2025, house prices and buyer demand have already begun to see an upward tick, with demand at 26% vs Housing stock at 12% y-o-y, according to Zoopla.
Drivers for the Buy-to-Let market
Property prices, higher borrowing rates, and an increased cost of living are all factors where a strategic approach is essential for investors when looking at higher-yielding Buy-to-Let investments. Regardless of whether it is a primary or secondary form of income, the profit margin and re-evaluating the type or property must be considered.Professionalisation of the market
There has been plenty of scaremongering in the mainstream media around the ‘death of Buy-to-Let.’ But for those who take a well-thought-out approach, assess all options and think in the longer-term Buy-to-Lets can be a sound investment.The professionalisation of the sector may see the long-proposed EPC regulations, renters' reform bill, and the need to diversify into different property types. The British Landlord Association reported that a House of Multiple Occupancy (HMO) averages a yield of 7.5%, almost 4% more than a single-let property, which averages 3.63%.
The professional landlord could also adopt a more structured set-up in the form of Limited companies, leaving landlords paying corporation tax, and not income tax on their earnings, which could result in more effective tax planning.
Capitalise on funding options
From bridging loans to fee options, should landlords consider that the lowest rate, may not be the best rate when it comes to financing property purchases and renovations? Utilising equity release or short-term funding to boost deposits or how property purchases or renovations are funded.We are still in a relatively high BoE interest rate environment, and to support borrowers West One has provided fee options to lower the overall monthly payment. An increased fee attached to a product has seen West One offer Buy-to-Let rates starting from 2.34%.
A complex market needs a lender who understands the complexities. The experienced team at West One are poised to provide tailored solutions, recognising that not all opportunities are straightforward. The manual and reason-to-lend approach taken can be the difference in securing funding for a first home, next home, or Buy-to-Let opportunities.
