It seems there hasn’t been a year go by recently when landlords haven’t been left reeling by some new piece of legislation.
Since 2015, we’ve seen the introduction of the Stamp Duty surcharge, the phased reduction of mortgage interest tax relief and more stringent affordability checks coming into force. And that’s just for starters. There’s also been changes to HMO licensing, the launch of the Tenants Fees Act, the introduction of Minimum Energy Efficiency Standards and the proposed abolition of Section 21.
Now don’t get me wrong. I’m all in support of anything which improves things for tenants, drives up standards and gets rid of those landlords who give the rest of the industry a bad name.
However, amongst all of these headline-grabbing changes I’m concerned that three new tax reforms which were announced in the 2018 Budget and which are due to be introduced on 6th April later this year might have slipped under the radar. The changes could have big implications for landlords and the amount of Capital Gains Tax (CGT) payable if they decide to sell a rented property which they’ve lived in at some point during their ownership.
First of all, lettings relief will be limited to properties where the landlord lives with their tenants from 6th April. Landlords are currently entitled to relief of £40,000 on CGT, even if they don’t live at the property.
Secondly, private residence relief is being scaled back which means that landlords who previously lived in their houses before letting them out will see the period they are entitled to CGT relief cut from 18 months to nine.
Finally, it’s worth mentioning that CGT incurred following the sale of any residential property will now have to be paid within 30 days of the completion date. At present, owners can wait to tell HMRC in their tax return for that tax year, but after 6th April they will need to complete an online return and pay any capital gains due. Failure to pay within the 30 day deadline could result in HMRC imposing interest and potential penalties.
What does all this mean to landlords looking to sell a residential property? Well, to put it bluntly, if they’re considering selling a property after 6th April they may have to pay more CGT.
It’s why brokers who are aware of all the changes happening in the market are worth their weight in gold. It’s also why here at Precise Mortgages we place so much importance on education, not just for our staff but the wider market too. We run regular workshops around the country where brokers can access the information they need, and a member of our Sales Team is never far away if you’ve got a question about any aspect of the sector.
Forewarned is forearmed, so the saying goes, and with so much information for customers to absorb, it’s never been more important to ensure they’re kept up-to-date with the latest developments.
New syndicated research* for Precise Mortgages, one of the UK’s leading specialist lenders**, reveals landlords’ acquisition plans for the year ahead, with the North West expected to be the busiest region.
The study by BDRC found more than one in five landlords (22%) plan to buy in the North West followed by the South East and Yorkshire & The Humber which 16% of landlords are targeting for new properties. Regions reporting a higher proportion of buyers than sellers in the next 12 months included the East and West Midlands plus the South West and North East.
More than two out of three (68%) of buyers plan to fund their next purchase with a buy to let mortgage while just 18% will release equity from existing properties. Demand for mortgages is similar across all portfolio sizes although 23% of landlords with 11-plus properties will release equity.
Brokers continue to dominate the market – almost 73% of landlords used a mortgage broker or intermediary to arrange their last BTL mortgage, while 19% went direct to a lender. Landlords with six to 10 properties were the most likely to use brokers at 79% while 29% of landlords with one property dealt directly with a lender.
Precise Mortgages’ range of buy to let mortgages offers rates from 1.99% for a 2-year fixed rate and 3.19% for a 5-year fixed rate. Its top slicing feature is available across the entire product range offering landlords greater flexibility on loan size and the ability to choose from a wider range of solutions.
Alan Cleary, Managing Director of Precise Mortgages, said: “The increasing professionalisation of the buy to let market means landlords are becoming more focused and selective in where they buy properties and how they fund their purchases.
“Recent rate cuts across the buy to let market are highlighting the opportunities to increase portfolios and profitability as well as underlining the need for expert advice from brokers particularly among landlords with bigger portfolios.”
Full details of Precise Mortgages’ range of buy to let products are available at https://www.precisemortgages.co.uk/BuyToLet
* BDRC Q3 2019 Landlords Panel syndicated research report. Fieldwork was conducted online between 6th and 20th September 2019 among a sample of 888 National Landlords Association members
** BVA BDRC Project Mercury Report Q1 2019
Alan Cleary - Group Managing Director
According to the latest figures from the Association of Short Term Lenders, bridging loan applications in the third quarter of 2019 grew by nearly 17% on the same period in 2018, reaching £6.1bn.
The trade association’s figures also suggest that at the end of the third quarter, bridging loan books totalled £4.3bn, a reduction of 6% compared with Q2, but an increase of more than 5% on the same period in 2018.
The figures, while unofficial, show how strong growth in this sector has been at a time when transaction activity in the mainstream residential and buy-to-let sectors has been put under pressure from the ongoing political uncertainty.
They come as separate figures from Link Group suggest that P2P lending has also seen strong growth this year. According to Link, marketplace lending — which includes crowdfunded and P2P loans — hit a record £3bn in the first half of 2019, rising by more than £500m, an increase of 21.6%.
According to Link’s analysis, the sector’s performance was powered by an exceptional period of growth for property lenders — they accounted for three fifths of the additional lending in the first half, some £848m – a significant uplift of 54.5%.
We’ve also experienced a very strong year for bridging. Much of the turnover has been driven by landlords reengineering buy-to-let portfolios, adding value through refurbishment or conversion to HMOs.
This uptick has been good for those in the short-term sector; clearly there is significant value created in this market that feeds through into the mainstream markets. But we should also be mindful of the fact that strong growth and larger loan books bring greater responsibility for those loans and borrowers.
As a bank, we take this responsibility very seriously, including where we operate in unregulated markets, such as unregulated bridging. But because this market is currently partly unregulated, there are still lenders that appear less inclined to do the appropriate level of due diligence and which lend on deals that others would rightly decline.
It’s not always in the interests of the borrower to approve a loan application where the numbers look too tight.
As an industry, we’ve come a long way in cleaning up shoddy practices, such as charging interest before it is due and adding exit and extension fees onto deals. Unfortunately, these things do still go on in the darker reaches of the market. Currently, bridging lenders have the opportunity to self-regulate, but it’s possible that the senior managers regime will give the regulator more power to intervene in unregulated markets.
There are plenty of lenders, such as ourselves, who see this as a good thing. We already conduct all of our business to the standards expected of us in regulated markets. But it may pose headaches for some lenders not used to operating this way, something brokers are likely to start considering more seriously.
So, while 2019 has been a year of superb growth for short-term lenders, we expect 2020 to be characterised by some consolidation and a shake-out of any lenders that continue to cut corners. For borrowers, that will mean better protection. For brokers, it will mean working with responsible, stable lenders that are in this market to stay. And for the lenders that remain, it will mean a bridging book that is both resilient and profitable.
Alan Cleary, Group Managing Director
If we want to save money on our car insurance, energy bills or credit cards most of us wouldn’t think twice about switching suppliers.
So why are there still so many people not doing the same thing when it comes to their mortgage?
Earlier in the year, the Financial Conduct Authority’s Mortgage Market Study found that around 800,000 homeowners were spending more on their mortgage than necessary. The FCA reckoned that switching could result in an average annual saving of £1,000.
Research from MoneySuperMarket found that nearly half of people view remortgaging negatively, with around one in five saying they were embarrassed to admit having remortgaged. Of those surveyed, 23% of people assume they only needed to remortgage to borrow money, 13% believe they can only remortgage if their current deal is coming to an end and 11% think there is a limit to how many times they can remortgage.
However, what really stands out from the research is the fact that the majority of customers aren’t remortgaging because they simply don’t understand or aren’t aware that refinancing their existing mortgage could save them hundreds, if not thousands, of pounds.
Ironically, the research comes during a period when a low base rate and fierce competition between lenders means there’s probably never been a better time for borrowers to remortgage. Consumers looking to remortgage now have a huge amount of choice when it comes to deciding which product to go for, and they could also benefit from some of the lowest rates in recent times.
What the FCA and MoneySuperMarket’s findings highlight is the importance of advice and education in the remortgage process and the vital role brokers have in helping customers to refinance their properties.
It means there’s a huge opportunity for brokers to reacquaint themselves with previous customers who are approaching the end of their term or who have already lapsed onto their existing lender’s reversion rate. Lenders also have a crucial role to play by making sure they’re designing attractive products to meet demand.
At Precise Mortgages, we offer customers a range of remortgage options on both our core buy to let and residential mortgages. We’re also one of the first specialist lenders to offer Help to Buy remortgages with our deals including zero product fees, refund of valuation and cashback to help customers make the transition from first-time buyers to established homeowners.
So whether your customer wants to remortgage to move to a cheaper product or escape their existing lender’s reversion rate, are nearing the end of their current product term or want to unlock equity in their property, it’s up to all of us to ensure they’re aware of the options open to them and know where to go to access them.
Some 62 per cent of landlords who are planning to remortgage over the next year plan to do so through a broker or intermediary, data from Precise Mortgages shows.
The Q3 2019 Landlords Panel research conducted by BDRC on behalf of the specialist lender surveyed 888 landlords and found that 31 per cent had intentions to remortgage next year due to increased competition and product innovation.
Of those planning to remortgage, 63 per cent are doing so to avoid being moved on to standard variable rates. However, 22 per cent said they were doing so to get a better rate, while 24 per cent cited releasing equity as a motive.
The study found landlords with more than four properties were the most likely to change mortgage deals over the next year – with 35 per cent preparing to remortgage compared with 19 per cent of those with one to three properties.
Alan Cleary, Group Managing Director of Precise Mortgages, said: “With buy to let rates being reduced it makes sense for professional landlords to optimise their investments by remortgaging but clearly landlords need specialist support from brokers as the study demonstrates.”