The buy-to-let market has experienced a tough time in recent years following the introduction of punitive tax changes; but while these changes have had a material impact on the sector, it is not dead on its feet, as some appear to believe.
Ongoing political uncertainty surrounding the UK’s property market — caused by Brexit — certainly has not helped, with many foreign investors opting to keep their powder dry until more clarity has been provided around Britain’s future in the EU.
But even then, we are seeing many overseas investors increasingly act on the volatility in the market, as it is putting pressure on the pound and making for even cheaper discounts as exchange rates work in their favour.
The latest lending trend figures published by UK Finance confirmed that the BTL sector is down but certainly not out. During February 2019, there were 4,800 new BTL mortgages completed. Yes, this was down 7.7 per cent compared to the same period in 2018 but it is not an abject drop-off.
In addition, there were also 14,400 BTL remortgages in the sector, up 2.1 per cent compared to the same period last year. This data highlights how landlords are now more incentivised than ever to lock into the most competitive rates available to maintain any kind of margin amid the ongoing fiscal fall-out — and why advice from brokers is more important than ever.
And rates in the sector do indeed remain highly competitive. The particularly strong appetite of limited company landlords has forced lenders to keep mortgage rates at a competitive level as they continue to battle for market share in a contracting market. Ironically, the contraction in the market has created a degree of spark, in terms of innovation and pricing at least.
It is now very clear that a significant percentage of portfolio landlords took a step back to assess their options after the tax changes were introduced, and we are now seeing more and more of them re-enter the market under limited company structures.
This is backed up by the research from Precise Mortgages, which revealed that almost two thirds (64 per cent) of portfolio landlords were planning on using limited company structures to purchase their next properties.
This comes as no surprise as by using a limited company structure, landlords can offset all of their mortgage interest against their tax bills as a business expense, and instead pay corporation tax at a flat rate of around 19 per cent, which goes down to 18 per cent in April 2020.
With limited company structures becoming so popular in BTL, some lenders are in the process of setting up (or have already set up) dedicated services for this resurgent form of borrower.
What we are also seeing is a definitive shift in lenders upping the ante in new markets, of which Scotland is a prime example.
In October last year, for example, Vida Homeloans launched its entire BTL offering in Scotland and I believe that we will see an influx of lenders following in the same footsteps. The Scottish BTL market still only has a small number of lenders offering their entire product range, so there remains a lot of untapped potential north of the border.
Mark Dyason is managing director of Thistle Finance