The new industry regulation is not a barrier to business but it has muddied the waters in the buy-to-let sector
As the dust begins to settle from the industry reforms introduced in early Q2, we now understand a little more about the new mortgage landscape.
Buy-to-let has probably experienced the biggest shift as a result of regulatory change and the new tax regime, not least because of a 3 percentage point increase in stamp duty.
The Mansfield does not regard the new regulation as a barrier to business but does believe it has muddied the waters. Since the implementation of the Mortgage Credit Directive in March, the society has tailored its buy-to-let proposition to meet the new regulatory requirements, but there are some lingering side-effects.
A good example is the impact on what was previously known in the industry as ‘regulated buy-to-let’, where a landlord lets the property to a close family member. Referring to this type of lending as ‘regulated’ is a misnomer given that all buy-to-let mortgages are now governed in some form by one of the sector’s regulators, including HM Revenue & Customs.
The logical approach would be to simply rename it, perhaps as ‘family buy-to-let’. Easy, you may think. But the challenge becomes apparent when you come to source family buy-to-let only to find that the sourcing systems have employed the tickbox previously used to identify regulated buy-to-let for consumer buy-to-let – a different beast altogether.
Sourcing system providers are working on a solution to aid online selection. In the meantime, let us at least agree on a common name for it.
Another area hit by regulatory change is the ex-pat buy-to-let sector, where opinions vary widely depending on who you talk to.
Some lenders believe that providing sterling loans secured on UK property to overseas landlords remains largely unaffected by the regulatory change where rental income is paid in sterling.
Others, who have perhaps taken a more literal interpretation of the rules, suggest that, if exchange rates move in the wrong direction, lenders are legally obliged to offer the borrower the option to convert their sterling buy-to-let into an equivalent mortgage in the currency of the landlord’s earned income. It is understandable that lenders remain cautious in this sector should the consequent implications of the latter interpretation prevail.
And finally, you could be forgiven for thinking that it was the end of an era for amateur and small portfolio landlords as limited company lending has surged since the tax changes kicked in.
The benefits of going down the limited company route are clear to many. However, not all landlords – such as those looking to supplement their retirement income – have the same appetite for the increased administrative burden that comes with it.
While the increase in limited company buy-to-let cannot be ignored, The Mansfield has refreshed its buy-to-let mortgage range in support of those independent landlords who are happy with their current tax arrangements and are looking for a straightforward set of products to help them finance their property portfolios.
We cannot do anything about the increase in taxation or the regulatory changes that impact lenders but we can do our bit, through product design, to improve the return that landlords receive.
I have no doubt that, as a result of the UK’s decision to leave the EU, the Government will be increasingly interested in the buy-to-let sector and the impact of the financial and regulatory reforms. In particular, it will be keen to understand how the recent changes and impending Brexit will affect the quality, quantity and availability of UK housing stock.
Irrespective of what lies ahead, we must continue to provide common-sense solutions to brokers and their clients, making life a little easier where we can.
Steve Walton is national development manager at Mansfield Building Society