SPECIAL FEATURE: The future of lending
Even though the Monetary Policy Committee voted unanimously to keep rates from rising this month, indication from the Governor of the Bank of England, Mark Carney, suggests that interest rates could finally start to rise by the end of this year. Savers will feel relieved, as many have struggled to get any return on their money since rates dropped after the financial crisis. Consumers looking to take out a loan may also find that now is the best time to take the plunge with the variety of low rates on offer.
The predicted rate increase has seen a surge remortgaging. Recent data from the British Banking Association revealed that remortgaging was around 20% higher year-on-year, which could be due to an anticipated interest rate increase within the next 12 months. The surge in remortgaging could also be a result of borrowers hoping to lock in current fixed rates, guarantee low interest and gain certainty over their future outgoings. With the recent announcements and changes on the horizon, we may see an even bigger spike in remortgaging interest.
This rise is partly fuelled by record-low mortgage deals. For instance, mortgage loans are currently at rock-bottom rates thanks to increased competition from lenders. The average two-year fixed rate mortgage has fallen from 3.67% a year ago to 2.75%, and borrowers are clearly taking advantage of these low rates to secure lower monthly repayments. If consumers delay on taking a competitive deal now in hope of a better rate – it might be too late. However, it’s important for brokers to communicate that headline rates will only be awarded to people with perfect credit scores, so brokers will need to help their clients find the best possible product for their individual situations.
Following this surge in interest, some of the cheapest fixed rate deals could be pulled by banks in the next few months, so now is the time for brokers to advise mortgaged homeowners and other borrowers who could see their costs increase with rising rates. Even if an interest rate rise remains a few months off and could be postponed further, brokers should be prepared to advise for any eventualities now, especially for any customers who are thinking of taking out big loans ahead of any rate changes.
Brokers should be able to provide information on a range of financial products available to customers in the medium term. With the popularity of second charge mortgages increasing, brokers should be advising clients on how to get the right product for them, regardless of their credit history.
The future of buy-to-let
There are lots of reasons why buy-to-let investments have delivered great returns in the past, but the recent summer budget revealed that there will be a reduction in tax relief on buy-to-let mortgage interest payments. These changes would limit payments to the basic rate of income tax, ending the advantage that landlords have had in the property market. Although the proposals are currently just a policy paper and are not likely to start implementation until 2017, brokers should act now to help their landlord clients prepare for the changes.
As borrowing to become a landlord becomes tougher, landlords are likely to look to brokers for advice on new options in buy-to-let products, with some landlords looking to transfer existing property. This will incur stamp duty as well as potentially capital gains tax and early redemption charges. With so much to consider, professional tax advice is vital.
Since the changes were announced, many landlords have considered transferring ownership to corporate structures, which continue to benefit from tax relief on mortgage interest payments. Other measures could include shifting the ownership over to a spouse, who may enjoy a lower rate of tax. Others may look to ‘selective licensing schemes’ which allow local authorities to implement licensing for landlords in the area to improve the quality of private rented homes. Only a handful of specialists will accept new buy-to-let products and most of these can only be accessed via a few brokers.
Examining all of the possibilities associated with getting a buy-to-let mortgage can be time-consuming and overwhelming for consumers, especially with so many changes on the horizon, so now is the time for brokers to take action and outline all the options available. The changes will give brokers the opportunity to open up new lines of business and perhaps more importantly, help clients to obtain professional tax advice.