Jeff Knight is director of marketing at Foundation Home Loans
In most walks of life, a request to deliver ‘more of the same, please’ would be seen as a positive.
A general happiness with what’s happened previously and an understanding that were the same to happen again, that would be a generally positive experience.
However, what about the mortgage market and, specifically, the buy-to-let sector? Would any stakeholders be happy with ‘more of the same’, or – in our quest to secure more business, more customers, more profit – would a 12-month period which looked and felt like the previous one, actually be viewed as something of a step back?
Of course, it depends on the circumstances. For example, the mortgage market has performed pretty steadily over the past half a decade – a plateauing of business might have been expected and accepted more recently, because of the rather unique political situation we find ourselves in, and the uncertainty about how the UK economy and the housing market specifically might react to all things Brexit.
But, what about buy-to-let? This is a slightly different case in my opinion, because we appear to have gone from a point mid-way through the last decade, when we were on a strong upward trajectory, to a slightly different place now.
The reasons behind this are many but clearly buy-to-let – and landlords in particular – have taken a number of hits, both from a regulatory point of view, but also taxation wise (both stamp duty and mortgage interest tax relief), and various other impacts, which have all had a unique effect on activity, profitability and (in many cases) have seen some landlords leaving the sector all together.
In that sense, do we want ‘more of the same’ when it comes to intervention? I very much doubt it. If you’re a landlord, you’re probably only now getting used to the impact of taxation changes on your profitability.
You’re only now getting used to the idea of the abolition of Section 21 ‘no-fault evictions’. You’re only now getting used to the 3% extra charge on stamp duty. You’re only now getting used to an environment where the political impetus appears to have been to support first-time buyers possibly at your expense.
That has taken a lot of getting used to, and therefore ‘more of the same, please’ might not truly cut it. In certain aspects however, we might all have to accept a certain level of ‘more of the same’ – as lenders, the overall buy-to-let gross lending pie has been the same size for a couple of years now, with the anticipation that it will not change drastically over the same period going forward.
IMLA recently released a report which predicted 2019 buy-to-let gross lending would be similar to 2018’s £37bn, and that it would drop in 2020, with potentially an uptick in 2021.
It predicates this analysis on an assumption that remortgage activity will fall, mainly because of the growing popularity of five-year deals during the last couple of years – as a means to maximise borrowing – and therefore those cases that would normally have come around every two years, will now take longer to return. Not forgetting, product transfer activity which has also grown, although perhaps nowhere near the growth we have seen in the residential sector.
But, our view, is that there could be a greater cause for positivity in our sector than some might imagine. We, for example, await March’s Budget but there’s no doubting we probably have greater certainty for landlords with a Conservative government than what might have been brought in by the Labour Party. Will it roll-back on the stamp duty/taxation changes? It’s doubtful, but there’s also less chance of big-ticket, PRS/BTL-hurting measures being introduced now. In that sense, more of the same is likely to be better.
Plus, there is the fortitude and ambitions of landlord clients. We’ve seen a change and move towards professionalisation and portfolio landlord activity over the past few years, utilising limited company vehicles and becoming more active in higher yield-generating property purchasing such as HMOs and multi-unit blocks.
More of the same here might well propel the market on further, and there’s no doubting that those at the more professional end of the landlord spectrum, want to add to portfolios, want to refinance, want to increase their footprint, and need quality advice and excellent lending products/services/rates, in order to do so.
Advisers who are active in the buy-to-let space, and are not recognising the opportunity with portfolio landlords, need to do so quickly, because our view is that here there will be more activity and business to be achieved.
At Foundation we certainly anticipate greater levels of lending in this part of the market, especially when you consider other demographics such as strong tenant demand, poor social housing supply, the continued difficulties for younger people in getting on the ladder, a greater student population and the social mobility needs of the population.
All add into a positive push in activity by professionals/portfolio landlords, plus (I dare say) with house prices and rental values pushing up, the allure of property as an investment will continue to heighten. 2020/21 could be two years in which the amateur landlord is tempted back in the market, and these players will be the next generation of portfolio landlords.
Overall, we can best sum up our view of buy-to-let as requiring ‘more of the same…and then some’. Those who understand and work with strong, quality lenders like ourselves, will be able to secure significant business – the foundations of the sector are strong, of that there can be no doubt.
We’ll certainly be looking to deliver more than we’ve ever done – I suspect there will be many landlord clients who feel the same way and they’ll need quality advice to do it. Make sure it’s coming from you.