The BoE’s base rate cut to 4.5% will have significant implications for various sectors of the economy, including the property market and the buy-to-let (BTL) investment sector in particular, which is where our attention is naturally diverted at times like these.
The impact of the cut, particularly on those seeking to transition from short-term property finance like bridging loans into longer-term arrangements is not immediately obvious, but for the BTL sector, includes:
Lower borrowing costs: A base rate cut generally leads to a reduction in mortgage rates, as lenders adjust their rates to reflect the lower cost of borrowing. For buy-to-let investors, this means potentially cheaper fixed or tracker mortgage deals, which could reduce their monthly payments and improve yields.
Improved refinancing options: Investors seeking to exit short-term property finance, such as bridging loans, which typically have higher interest rates to reflect the increased risk, may find the cut makes long-term refinancing options more affordable. This provides an opportunity to lock in lower rates, offering stability against future changes.
Outlook for buy-to-let mortgages
Although the impact is not immediate, the lower base rate could stimulate increased competition among lenders, which can see the launch of innovative mortgage products, such as discounted variable-rate deals, aimed at attracting buy-to-let investors.
Lower mortgage costs could bolster investor demand for buy-to-let properties, particularly in high-yield areas, as the reduced cost of borrowing improves returns.
However, investors should remain mindful of ongoing regulatory and tax changes in the buy-to-let market, such as changes in mortgage interest tax relief and the increased stamp duty surcharge will be further adjusted from 1 April 2025.
There has also been a lot of discussion about the impact on the private rented sector (PRS) of the Renters’ Rights Bill. It is expected to add extra cost for landlords, which is likely to be passed on to tenants when the new rental rules become law later this year.
These factors could offset some of the financial benefits of a base rate cut and the Renters’ Rights Bill may lead to some landlords leaving the sector, which may be the Government’s ultimate aim.
While lower rates are attractive, they often signal underlying economic challenges, such as the recent rapid jump in inflation. Investors will consider the potential for reduced rental demand if the economy deteriorates and tenants face financial difficulties.
Strategic considerations for exiting short-term finance
Signature delivered another record year in 2024 and the introduction of a time-limited offer of lower residential bridging rates is designed to get our year and that of our clients off to a strong start.
It’s coincidence that our rates are low, but we believe timing is important. The base rate cut provides a window of opportunity for investors to secure more favourable long-term rates, but they should act swiftly as lenders adjust their offerings.
Investors exiting bridging loans may need to reassess loan-to-value ratios, as lenders may tighten criteria in a risk-sensitive market as the economy slows.
And finally…
We believe the Bank of England’s base rate cut creates favourable conditions for buy-to-let investors transitioning from short-term property finance. We expect a surge in activity as investors look to increase their portfolios, potentially buying property from landlords exiting the market.
Lower mortgage rates and competitive refinancing options present an opportunity to reduce costs and secure a more stable future. However, long-term success will depend on careful consideration of economic trends, property market dynamics, and evolving regulatory landscapes.
ENDS