Steve Olejnik, sales director at Mortgages for Business, outlines what he believes is in store next year for brokers in the buy-to-let market.
Lending figures from the Council of Mortgage Lenders will not be out until February but I expect gross buy-to-let lending in 2015 to reach something in the region of £32bn.
On the surface, 2016 could be more subdued and I guess that the CML may report lending of around £30bn.
In reality this figure could well be nearer £35bn if we include lending not reported to the CML from the specialists, particularly those offering rates to limited companies.
Personally, I doubt that Bank of England base rate will increase in 2016 although our managing director David Whittaker has bet me £20 that it will start to rise from either August or November at the latest, following the Bank’s inflation report.
I expect pricing to remain competitive throughout the year with rates for limited company applicants coming down in price so that they are more akin to rates for individual borrowing.
Q1 will be extremely busy as borrowers rush to beat the introduction of the 3% stamp duty surcharge. Since the announcement was made, we have been encouraging our clients to make haste to avoid any potential processing delays.
We will see more borrowers switching to corporate vehicles in which to purchase buy-to-let property as they prepare to mitigate the proposed reductions to tax relief on financial costs.
Currently there are only eight or so buy-to-let lenders which offer products to limited companies. They will undoubtedly be swamped in the run up to 1 April, as will valuers and solicitors.
I would expect to see some more of the existing buy-to-let lenders begin to offer products to limited companies. New market entrants too, will have to have a corporate offering if they plan to compete in this sector.
The typical profile of a buy-to-let borrower may well change from predominantly part-time investor to professional landlord. The increase in stamp duty, the tax changes and the general bad press that buy-to-let has received recently could put off borrowers who previously got into buy-to-let as an alternative pension strategy.
Many professional landlords will just suck up the increased costs, adapt to the changing environment and carry on. Some may make a move into mixed use property where the 3% stamp duty surcharge does not apply.
March will see the introduction of consumer buy-to-let. Any lender which already has a residential arm is likely to provide products for this niche. Borrowers will just have to contend with more paperwork.
From 1 January we will be asking all of our clients who wish to borrow personally to take professional tax advice to ensure they understand the implications before proceeding.
We will also get them to sign a declaration in this regard. I can see a future PPI scandal waiting to happen if borrowers aren’t helped to understand the full implications of their actions.
There has been much talk of lenders having to set aside more capital for buy-to-let but I don’t think this will come in until 2019. In the meantime there will be lots of talk and consultation before the rules are hammered out.