HMRC has caused concern by implying planned tax changes and the PRA is set to pronounce on tougher lending standards
Recently there was a scare over the Finance Bill going through the House of Commons. New wording, slipped in without consultation, suggested that HM Revenue & Customs was minded to treat the sale proceeds on buy-to-let not as capital gains tax, which has a maximum taxation band of 28 per cent, but as income, which means taxation for some could be as high as 45 per cent.
This interpretation of the wording has been denied by HMRC and letters of assurance have been published publicly to say that this is not the case. However, if you, like me, have been around for long enough, you will know that, once HMRC gets an idea into its head, it will come back to it at some point. This therefore strengthens the argument that borrowers, in the future, will shelter properties within limited company structures, where corporation tax is at 21 per cent and going south from there over the next two or three years.
At the end of September we expect pronouncements from the Prudential Regulation Authority, which has been leaning on buy-to-let lenders about tightening affordability tests and implementing tougher underwriting standards.
The tightening of affordability was proposed to prevent inappropriate lending and the potential for excessive credit losses. Some lenders have already moved their stress tests for individual borrowers, including our own lending brand, Keystone, and Foundation Home Loans, The Mortgage Works and Woolwich (Barclays). But other lenders are yet to make the adjustment and the PRA is likely to insist they do before the year’s end.
Stricter stress tests mean individuals will be unable to borrow as much as before, and lenders should be mindful that this could affect their lending targets.
Similarly, tougher underwriting means lenders that have hitherto shown only modest curiosity about the background status of landlords will be asked to stress test landlords’ portfolios. This means much more paperwork between broker and client, and between broker and lender, with analysis at all levels. Tougher standards may not bite until early 2017 but there will be a different landscape in future. It will be interesting to see which lenders have the internal capacity to deal with the paperwork and train their staff to handle these applications.
But let us be positive about autumn lending activity – we are already seeing new prices from the likes of Axis Bank, BM Solutions, Coventry, Leeds and Santander.
David Whittaker is managing director of Mortgages for Business