The buy-to-let landscape is continually evolving and as a specialist broker it is our job to help our investors, as well as our broker partners, keep abreast of new developments and help them make the right decisions in the new circumstances.
In a complex environment, landlords need guidance from their mortgage brokers to meet lenders’ requirements for finance. In this article, we look at recent and incoming changes that will impact property investors and their brokers alike this year and how brokers can weather them best.
1. A new landscape for portfolio landlords
For landlords with four or more properties with a buy-to-let mortgage (portfolio landlords), life has become more complex. Lenders now consider portfolio landlords as operating a professional property business and have tightened their underwriting requirements, including wanting to see a property schedule; personal income and expenditure form; cash flow forecasts; business plan and proof of personal income. Everyone in the industry, lenders, brokers and investors alike, are coming to terms with what the new regulation means for them.
In 2018, the industry will become more accustomed to the new situation, but brokers will still be critical in ensuring that their clients are continually updating the necessary records (such as the property schedule) and submitting all the information lenders need. To help brokers and clients meet these requirements, CPC Finance has developed tools.
2. Even lower tax relief on mortgage interest
Since April 2017 landlords holding portfolios as individuals have only been able to offset 75% of their mortgage interest against profits and this year, it drops to 50%. Already last year we saw landlords choosing to set up a limited company and hold their portfolio within that, in order to avoid being bumped up into a higher tax bracket by the additional tax-liable income. As landlords grow their portfolios and are impacted by this further reduction in tax relief, more may decide that this is the way forward. Of course, all brokers should advise clients considering a change in legal entity to talk to a tax professional as there could be tax costs such as stamp duty in transferring existing portfolios to a limited company.
3. Product switching in the Spring
It is now two years since the introduction of the additional 3% Stamp Duty on second homes and buy-to-let properties in April 2016. Before the deadline, many investors pushed to complete on their purchases and now those who opted for two-year fixed rate mortgages will start thinking about switching mortgage products. We are likely to see any investors who have not already switched, interested in the new products available. If no capital is being raised, there is no underwriting involved under the new rent stress rates.
4. Further rate rises on the horizon
Since the Bank of England raised rates for the first time in over ten years in November, lenders are also starting to raise their own rates, including for buy-to-let mortgages. Although the Bank of England expects that further rate rises will be at a gradual pace and to a limited extent, further rate rises will impact mortgage rates. Brokers will need to keep an eye on the latest shift in rates and changes in products available.
These are exciting times and we look forward to assisting our broker partners with any further changes in the year ahead. Property investment is professionalising as an industry and the requirements from lenders are more complex than before. Investors will therefore increasingly be looking for expertise from their brokers to navigate this landscape, bringing more opportunity to brokers.