Steve Griffiths, head of sales and distribution at Kensington, outlines what is in store for buy-to-let this year.
Forecasting is always a tricky business, but at least this year we have the benefit of two key signposts that will help to point to the future direction of the market.
There will of course be plenty of unforeseen influencers throughout the year, but the two dates we know about now are 21 March, the deadline for implementation of the EU Mortgage Credit Directive, and 1 April when an extra 3% stamp duty levy will be included on buy-to-let purchases.
So what will these changes mean for brokers and what do we think will be the general state of the buy-to-let market in 2016.
The impact of the MCD will be the broadening of the definition of consumer buy-to-let and the only buy-to-let mortgages that are regulated by the Financial Conduc Authority are those where at least 40% of the property is used by the borrower or a member of the borrowers immediate family.
But from March a consumer, and therefore regulated, buy-to-let contract will be a mortgage on any property that was not originally purchased for investment purposes, so properties that are inherited for example, or where a couple moves in together and let one of their properties, or let-to-buy.
I recently sat on a panel discussion about MCD and it was clear that some brokers were not yet fully prepared for the changes as they had still to change their permissions and their sales process in relation to consumer buy-to-let.
If you haven’t thought about this, it should be a priority for you to consider in January.
And it looks like being a busy January – indeed a busy first quarter to the year, as general consensus is that there will be a rush of purchase activity ahead of the stamp duty changes in April. But what will be the longer term impact of these changes?
To begin with, stamp duty is unlikely to significantly impact the remortgage market, which still accounts for more than half of buy-to-let business, although we may see a reduction in loan sizes as fewer investor release capital to grow their portfolios.
Beyond April, we think it is likely to dampen purchase activity among ‘casual’ buy-to-let investors – we worked out that based on data from the first three quarters of this year, it would add about £4,500 to the cost of an average buy-to-let purchase.
But more professional landlords are likely to take the view that they can soak up this cost within their long-terms gains.
Furthermore, there are proposals currently under consultation to exclude limited companies with more than 15 properties from the extra Stamp Duty charges.
If I were a broker, I would therefore be looking to boost my skillset and partnerships with accountancy firms to ensure that my firm was able to provide appropriate advice to portfolio landlords, with all of the extra complexity that this can come with.
Whilst the additional changes to taxation of rental income and mortgage interest tax relief do not start to phase in until 2017 brokers also need to be prepared for how landlords needs will change.
Brokers will need to widen their knowledge of specialist lenders within the buy-to-let space, as it is likely that innovation around new products and criteria will come from this sector to service those needs.
There is certainly a good deal of change to prepare for, but the ultimate picture looks like a positive one and the silver lining of any changes that present a more complex decision for a customer, is that there is even more need to get good quality financial advice.
The fundamental driver of supply and demand still points to and undersupply of accommodation, which is good news for landlords, and good news for brokers who can adapt to the changes to continue to deliver the most appropriate advice for their landlord clients.