The buy-to-let market will become more professional with ‘dinner party’ landlords edged out, according to a panel of experts at the Mortgage Strategy Leaders Forum.
The panel were unanimous in their opinion that changes to the buy-to-let tax regime coupled with new rules about portfolio sizes and, more recently, houses in multiple occupation would see less speculators enter the buy-to-let market.
Mortgage Strategy editor Rebekah Commane chaired the panel discussion about the future of the buy-to-let market.
Brightstar Financial chief executive office Rob Jupp said stamp duty changes have had the biggest effect on the market. He said “It’s slowed down the property market, especially in the south of England. There’s no truth to press reports that landlords are leaving in droves. But the tax changes have been the death knell for dinner party landlords.”
Keystone Property Finance chief executive officer David Whittaker said: “One of the biggest changes over the past couple of years had been changes to the rules for portfolio landlords. The broker market rose to the challenge and were better organised than the lender market.”
Whittaker went on to say that where some landlords had sold up and exited the market, the properties were not being bought by first-time buyers – as the government intended – but by other investors and professional landlords.
“Increased yields in some areas have mitigated the tax changes. As a long-term business plan with yields of 4.5 per cent or 5 per cent and mortgage rates about 3 per cent, buy-to-let is still a good investment,” he said, “Buy-to-let is a broker-led product with more than 96 per cent of sales coming via broker channels.”
Figures released this week suggested the number of first-time buyers is on the up – but the panel suggested this was more to do with Help To Buy than the squeeze on landlords.
One Savings Bank sales director Adrian Moloney said: “Help to Buy has been the stimulus for an improved first-time buyer market, not landlords selling up.”
Aldermore director of mortgages Damian Thompson said a lot of the changes to the mortgage market are yet to hit. “More people are looking to rent rather than buy, so landlords are seeing increased rents and increased rental yields. More landlords will think about their plans when the time comes to do their tax return. I expect to see more limited company products and landlords thinking about succession plans – passing property to family etc.”
Moloney agreed with Thomson that limited company lending has really taken off. He said: “Big landlords buying new property have put it in a limited company if they are a higher rate taxpayer – it’s a no brainer – and I expect to see more landlords take action. There are more opportunities in the complex market with more experienced landlords doing more HMOs.”
HMOs were a hot topic of debate on the panel. New rules which came into effect on 1 October 2018 mean thousands more properties are now classified as HMOs which must have a license from the local authority. Official figures suggest the number of HMOs has increased from about 70,000 to 177,000 across the UK but Whittaker put the true figure nearer 500,000.
“HMOs are a massive opportunity. Councils are writing to lenders saying a particular property is now a HMO but some lenders are saying ‘we don’t do HMOs’,” said Whittaker, “Landlords need to be very careful as if a HMO is not licenced, the tenants can claim back rent paid to 1 October and can’t be evicted. How will lenders deal with that? Some lenders don’t know they are lending on HMOs – the opportunity for brokers is immense.”
The effect of the Brexit negotiation was also the subject of much debate with Jupp admitting he was anxious about what lies ahead and said the next six weeks were the “biggest six weeks in politics in a generation”.
“I think two budgets are currently being written with the outcome of Brexit negotiations the major factor in what will be announced. Uncertainty is really unhelpful and I am nervous about the potential closing of the tax loophole for limited companies,” he said.
But while the contents of the Budget remain unknown for now, the panel generally agreed there would be no concessions for landlords who have become a cash cow for the Treasury.
The past fortnight has seen two think tanks put forward proposals suggesting landlords could be exempt from capital gains tax if they sell to tenants who have lived in the property for three years. But Thompson raised some valid questions about whether the plans could work in reality.
“Do tenants want to sign a three-year lease?” he asked “What if they need to move jobs? I think there’s a risk tenants won’t want to sign up. Tenants don’t want this, and it could be challenging for landlords too.”
Whittaker said lenders need to consider the PR angle when considering the ‘unintended consequences’ of any of a raft of rule changes. He pointed to a recent press story where Natwest told a landlord to evict a tenant on benefits, or remortgage her property, as Natwest don’t allow letting to tenants on benefits. Whittaker pointed out that similar situations could arise where lenders not active in the HMO market receive HMO letters from councils and have to decide on a course of action.