"Lenders seem to remain keen to maintain share of what’s likely to be a smaller market this year, so it’s difficult to see an opportunity for mortgage rates to rise."
FR: How will new regulations continue to affect the buy-to-let market in 2017, and how can lenders and landlords combat tightened affordability rules?
It’s important to point out that from a lender’s perspective; it’s not necessarily a question of combatting the new affordability rules. They have been put in place for a reason; to ensure lenders lend responsibly and to promote good quality long-term sustainable lending to consumers who can continue to make mortgage payments in the event of interest rate rises.
That said, the rules are certainly inspiring lenders to look at more innovative and customer-friendly solutions within the spirit of the rules. For example, we developed a new rental coverage calculator launched at the end of last year which sets a rental coverage ratio relative to the customer’s individual tax position, as opposed to a simple one size fits all model.
FR: What issues should intermediaries be aware of in the new buy-to-let landscape?
The market has undoubtedly become more complex as the various changes take effect.
We started with the implementation of the Mortgage Credit Directive at the beginning of 2016 and the introduction of a new layer or regulation for Consumer BTL.
This was soon followed by the first of the changes to taxation with and additional SDLT of 3% for BTL or second properties. The PRA statement requiring minimum stress rates to be implemented by the end of 2016 was next and the tapered change to tax relief on mortgage interest payments has recently kicked in.
That’s a considerable amount of change for intermediaries to get their heads around and run with over a short period of time. With multiple lender solutions available, it’s more crucial now than ever for brokers to understand the changes and the customers’ long-term aspirations to help guide them towards the right mortgage solution. This is now far more likely to involve advice from a tax specialist as well within the new landscape.
FR: Do you foresee buy-to-let mortgage costs remaining at record lows and can this help the sector to maintain its market share?
As competition has continued to build over the last few years, pricing has definitely moved in favour of the customer, and I’m not sure whether this can go much lower.
In the short term, lenders seem to remain keen to maintain share of what’s likely to be a smaller market this year, so it’s difficult to see an opportunity for mortgage rates to rise.
The PRA requirement to underwrite portfolio customers due to be implemented by the end of September will require additional time and resource if lenders chose to participate in this sector moving forward. This could potentially impact product rates, but any impact would take time to come through.
FR: Do you feel that the buy-to-let property market has been affected by Brexit and in what way?
We have not seen any direct impact of the Brexit result. Our most recent Buy-to-Let rental report showed that in the second half of 2016 transactions fell by 41% compared to the same period a year earlier due to tax changes and stamp duty rules inevitably leaving an imprint on the market.
However, our data found that investors earned an average gross rental yield of 5.3% in the second half of 2016. With annual consumer price inflation averaging just 1.0% in the same six-month period, landlords were provided with a healthy real return of over 4% on their investment. The data found that during the same period, they were earning an average rental income of £7662 per month from their property.
Demand for rental properties remains high and returns have remained strong in the past six months despite the challenges that have faced the market during that time.
FR: If you could see one headline about financial services in 2017, what would it be?
Definitely a healthy BTL market that has withstood a plethora of challenge supported by lenders and intermediaries writing good quality sustainable business in order to continue supporting a healthy private rented sector.
