Buy-to-let advice is needed more than ever
Bob Hunt is chief executive of Paradigm Mortgage Services
The mortgage market is, at all times, a moveable feast and the certainties of last month, or last year, can be changed in an instant.
Quite clearly, much of this is to do with the changing nature of client’s circumstances and what might have worked for borrowers the last time, for example, they remortgaged are not going to be appropriate when that time comes around again.
If you wanted a more fulsome example of this then you’d be hard pressed to look beyond what is happening in the buy-to-let sector right now.
Two years ago we were dealing with an activity ‘frenzy’ as landlords sought to push their purchases through before the extra stamp duty charges were brought in.
On top of this, we had (and have) the ongoing yearly changes to mortgage interest tax relief that will drop again in April and will I’m sure fix the minds of all landlords in terms of the profitability of their properties.
In a very true sense, those landlords who opted for two-year deals back in the first quarter of 2016 may well find a different mortgage market if they’re looking at their remortgage options right now.
There have been some suggestions that many landlords who purchased 24 months ago will find they are unable to change their product, essentially becoming another ‘mortgage prisoner’.
This might be a fate that does befall some however others might simply ‘get away with’ securing a pound-for-pound remortgage rather than being able to capital raise.
The reasons behind this are clear – regulatory changes brought in since that time have undoubtedly had an impact on lenders’, their buy-to-let propositions, and their ability to offer borrowers the types of mortgages they might have become accustomed to.
We’ve of course had the PRA underwriting changes, but also those specifically focused on portfolio landlords, and these have changed the mortgage market, lenders’ underwriting, their appetite to lend in certain areas, and the perceived credit-worthiness of both landlords and their properties.
Whether this does produce a whole group of ‘buy-to-let mortgage prisoners’ is a moot point and one that won’t truly be known until (I suspect) we are a few months beyond Q1 this year.
However, the good news for many landlords, is that despite all the changes that have been wrought on the sector, there is still a considerable interest in buy-to-let and a growing lending appetite, especially when we take into account the growing number of portfolio/professional landlords and the fact most lenders (at least of the specialist variety) are very keen to write business for this type of landlord, because of their risk profile, and of course the extra margin such business can generate.
Just this month, one of our lenders on panel, Accord, made a number of predictions about the 2018 mortgage market – a couple of which focused on the buy-to-let sector.
Accord suggested that April would be an important month because, as mentioned above, the further reduction in tax relief kicks in and this ‘may also prompt lenders to review their minimum rental cover requirements to ensure landlords can comfortably manage their mortgage payments’ – a suggestion that lenders might do all they can to a) either keep existing borrowers and/or b) make themselves attractive to those seeking to remortgage.
But also, it pointed out that purchasing buy-to-let properties through limited companies – a way to take the tax relief drop out of the equation – will ‘become more prevalent amongst landlords serious about either entering the market or building their portfolio’.
And that’s a point that shouldn’t be underestimated.
We’ve already seen a number of specialist lenders suggesting that, over the past couple of years, the number of landlords purchasing through corporate vehicles has grown considerably, and one would expect this trend to continue.
This tends to be the environment of the professional landlord and, while amateur landlords will still continue to play their part, I suspect that we will see more and more borrowers fulfilling the ‘portfolio landlord’ definition and that lenders will need to become more accommodating to this.
Last year, for instance The Mortgage Works signalled its intent to re-enter the limited company buy-to-let sector and you have to think others will follow.
Overall, the argument about buy-to-let ‘difficulties’ and ‘struggles’ seems to be slightly overcooked – certainly in terms of product choice and options which look at good levels with a lender community still keen for such business.
Advisers will have a job to do in explaining the market changes, but this was ever the case – the good news is that advice is needed more than ever and that there are options available.
The focus should be on finding those clients, servicing their needs, and ensuring they know where to go to for the right advice.