Landbay chief executive John Goodall expects the specialist buy-to-let lender to continue growing market share despite the stamp duty surcharge for landlords and the tax relief changes.
Since April 2016 landlords have had to pay 3% more stamp duty, while tax relief changes have resulted in landlords being taxed on their turnover instead of profit.
What is more from last year the Prudential Regulation Authority required applicants with four or more mortgaged buy-to-lets to provide additional information about their existing portfolio.
Goodall said: “Both stamp duty and tax relief means there will be less buy-to-let business. The market will be smaller than what it has been.
“We will lose some business because it will be a smaller market but we think our market, which also covers portfolio landlords, is growing so we’ll pick up other business elsewhere. We are a new lender and we’re growing our market share.
“We are doing less purchases than we would’ve done without those tax changes but because of the PRA changes, we’re doing more remortgages and portfolios, which exceeds that business we’ve lost.”
The tax changes, which are being phased in over four years, mean from 2017 to 2018 75% of finance costs are deductible from rental income, the year after 50%, the year after that 25% and from 2020 none.
By 6 April 2020 mortgage tax relief will be restricted to the basic rate of income tax, currently 20%.
Last year in December Landbay lent £10.5m – and by December this year Goodall expects monthly numbers to be a multiple of that.
Since limited companies are exempt from the tax changes, Goodall has noticed an increase in that kind of business.
He said: “It will impact us positively. The tax relief bit means more people doing business as limited companies so that number of people we deal with is increasing as cases become more complicated. The stamp duty part just means less purchases with the marginal buyer in buy-to-let being put off.
“I think the tax changes are negative for the industry as a whole. They deter investment. The rental market is very important. Taxing it a huge amount means a shortage of rental accommodation.
“I think the PRA changes on the whole are sensible. I’m not a fan of regulation but it’s fair the government will limit the amount of risks banks take with some minimal standards.”
By 2020 mortgage tax relief will be restricted to the basic rate of income tax but Goodall expects to meet his promise of lending a £1bn a year by 2020.
He said: “I think we’re on course. It’s a while away but I still think it’s achieveable. We’ve grown in terms of the size of the business and the amount we’re lending. It’s dependent on market conditions.
“I don’t mind the government intervening but there’s been a number of changes, stamp duty, tax relief changes and PRA, all coming within a couple of years.
“The PRA changes are relatively new and the stamp duty just two years old, so we haven’t seen the full impact. We don’t know if they will have a knock on impact on the size and quality of the rental market.
“I hope the next budget doesn’t introduce many changes because after lots of changes, it’ll be good to just have a period of no change.”
Landbay is still relatively new, only approaching four years, and Goodall’s main aim is to just get better at what the lender does.
He said: “We’re always looking to attract investors to fund loans so having great products is important for that. We will improving our products and technology and since we’re still a small lender not as well known, we have to build a brand.”
Goodall also expects interest rates to grow, predicting they will rise faster than what people think.
He said: “I think there has been more inflation pressure than people think so I think the buy-to-let market will remain subdued during the year. In a rising interest rate environment, you would expect that anyway as the cost of finance becomes more expensive.”