The BTL changes may challenge highly leveraged landlords but there are positives for the specialist sector overall
The recent changes to mortgage tax relief for landlords have been on the horizon for a long time. However, despite the fact they were announced in the 2015 Budget, it seems many borrowers are still coming to terms with what it means for them.
According to a report by Kent Reliance, one in six landlords does not understand the financial implications of the changes, and the worry is that they will be underprepared for higher tax bills.
But where there is doubt or uncertainty among landlords, there is an opportunity for brokers to close the educational gap and demonstrate the true value they can bring.
Of course, many landlords have already taken action to mitigate their exposure to these changes. We have seen a huge rise in those choosing to incorporate, for example, with limited companies making up 57 per cent of Kent Reliance’s new application volumes in the second half of 2016, rising from 40 per cent in December 2015.
By September last year, more than a third of landlords had moved their holdings for tax efficiency, or were considering doing so. We can expect to see a further drive towards specialist lending as these changes take hold and awareness increases.
That said, moving holdings to an incorporated model is not a one-size-fits-all solution and such a decision should not be taken lightly by landlords. With administrative and transactional costs, as well as capital gains, stamp duty and inheritance taxes that must be navigated in the process, both new and existing landlords will benefit from specialist advice at this time.
While the changes bring a significant financial challenge for highly leveraged landlords, there are positives for the specialist sector overall. Faced with fewer tax benefits, and with more complex regulation hitting the market, the tide has turned against short-termist speculation.
We expect to see further professionalisation of the buy-to-let market, shifting towards committed portfolio landlords who are truly specialist in running property businesses. This is not a bad thing for the private rented sector, with the professionalism helping the drive towards stability.
As this section of the market grows, it will bring with it increased demand for specialist products and lender capability to meet more complex needs. Equally, as the complexity of running a BTL business increases, we are moving towards an industry model with a more synchronised business and mortgage advice process, with multiple third parties working closer together.
Change will always bring uncertainty and the reduction in mortgage tax relief is yet another challenge. However, we are confident that the outlook for the professional landlord market remains strong.
What is clear is that this market will need lenders and brokers that can adapt to new regulation and rise to the challenge of addressing constantly evolving needs, whatever may be driving them.
Lenders and brokers form the basis of a symbiotic relationship that supports the housing market. As demand for more complex lending grows, this type of relationship will be the cornerstone in enabling the private rented sector to meet increasing demand.
Adrian Moloney is sales director at OneSavings Bank