Have faith: BTL will cope with the changes ahead
I have heard it said recently that we should fear the worst for the buy-to-let market in 2016. Headlines such as ‘Lose-to-let’ and ‘Buy-to-lose’ appeared over the holiday season from writers seemingly adamant the sector was on the road to oblivion.
However, my own view differs greatly from this and is perhaps evidenced by recent statistics from Mortgages for Business, which revealed in December that new limited company buy-to-let applications totalled close to 40 per cent of all applications, up from just 15 per cent in October. The number of lenders offering limited company finance has also risen and there are likely to be more lenders active in this space over the next few months.
I believe this demonstrates that the buy-to-let market is adaptable and will clearly accommodate the changes being inflicted upon it – notably higher stamp duty and a cut to tax relief.
Which is not to say there will not be an impact. It seems inevitable that transaction volumes will spike before the end of March, possibly followed by a summer lull. Then the market may reduce in gross lending terms for six months or so, but my belief is it will then be restored to around 85 per cent of today’s level, and quite easily.
The ‘new’ post-April market may not be greatly different from the old but it is likely to see more use of limited company structures, more use of specialist lenders in this sector and perhaps more opportunities for professional portfolio landlords.
Conversely, some lenders may decide the margin compression in buy-to-let lending, due to competition driving down the rate and inherent profit, means it is not a place to seek increased lending volume. Other niche sectors such as shared ownership, self-build and even light adverse could well benefit from this move.
However, in the medium to long term the likelihood is that, given the relative prosperity of buy to-let as a large niche – albeit with some regulatory constraints about to bite – it will remain a hugely important sector for brokers and lenders alike. Have faith.
How long it takes the market to settle into this ‘new normal’ is difficult to predict, especially if there is any further tightening or regulatory/government intervention. For what it is worth, I cannot foresee any significant, additional changes for at least the next 12 months and, given that we have had plenty to contend with recently, a period of relative stability is the best that stakeholders could hope for.
Rob Clifford, Shepherd Direct
Comments on an article by L&G’s Jeremy Duncombe on why retention proc fees are essential
The early days of the MMR roughly trebled the workload of the broker in sourcing, application processes and compliance. But these later days of continuing servicing are not just an issue fiscally; they are an issue on the transaction where some lenders still don’t have broker product switch options, proc fee or not.
We should, as Jeremy points out, congratulate the lenders that have taken the step to work with brokers on product switching and payment of the appropriate proc fee for that work. But we also need more pressure on lenders that simply use the broker to get the client in and cut them out thereafter – the lenders that do not have any product switch options that can be arranged by the broker.
The pressure should persuade lenders that actions in supporting your broker client as well as your borrower client are equally important in the TCF and TBF.
Chris Hulme, Clayton Hulme
It is great that this is being highlighted. Perhaps Woolwich can explain why they, however, pay only around 50 per cent of their normal proc fee for retention business – AND, more importantly, why they pay a proc fee only on the ‘elements’ of a mortgage switched.
This means if your Woolwich client has three parts to their mortgage but wants to switch only two, and you retain the whole mortgage for Woolwich, they pay you only for the two that switch. Which is unfair.
Our workload, as Jeremy says, is the same for retaining a client for a lender as it is for a ‘new’ remortgage. Our compliance requirements do not lessen as a result. I questioned Woolwich and was told “Well, we don’t have to credit check the clients and our workload is less, so that’s why you’re paid less.”
Treating brokers fairly??
Stuart Gregory, Lentune Mortgage Consultancy