"The mortgage market as a whole, and indeed the buy-to-let sector specifically, never stops evolving."
Pointing out the way things were done 20 years ago to a new adviser starter at your firm would probably illicit more than a raised eyebrow. Go back 10 years, in that immediate period post-Credit Crunch and you’ll probably get gasps of horror from your ‘newbie’. And even five years ago, the thought of such concepts as ‘robo advice’ or – from our perspective – the growth of limited company buy-to-let might have seemed fanciful at best.
The fact is that the mortgage market as a whole, and indeed the buy-to-let sector specifically, never stops evolving. If you wanted proof of this then look no further than one of the criteria search systems, Knowledge Bank, which recently outlined there had been almost 30,000 changes to mortgage lending criteria in the first half of 2019 alone.
That’s a serious number of changes, and I suspect without such systems, advisers would simply have no way of ascertaining how criteria had been reshaped across so many lenders and so many products.
Each month Knowledge Bank reveal the ‘most searched for terms’ across a number of sectors – buy-to-let being one of them – and it is illustrative to review just how this has changed over time. Certainly, if the same results were being collated back in 2014, for example, would we ever expect the most searched for terms to include: ‘lending to limited companies’, ‘HMOs’ or indeed ‘first-time landlords’. But it’s the case that all of these terms – during 2019 – regularly appear in the top five and the likelihood is that this will remain the case for the foreseeable future.
So, what is the reason for this? Well, from a limited company lender point of view, the evolution has been evident for some time, no doubt fuelled by the taxation changes around mortgage interest relief which mean that it’s only through a limited company that a landlord can secure full relief.
As soon as this announcement was made, and the phased-in drops in relief were announced, it was obvious that landlords would be looking at other vehicles in which to house and purchase their properties. It’s now reached a point where you might say the limited company buy-to-let is the dominant ‘vehicle’ being used right now – our recent research suggests that a growing number of landlords are going to either purchase or remotgage their next property via a limited company.
How could we have envisaged this five or so years ago? Limited company was a niche within a niche, whereas now – especially for portfolio and professional landlords – it is almost de rigeur. Having taken the necessary taxation advice, landlords are unwilling to purchase properties in individual names because the relief available is so low.
From an advisory perspective, it necessitates a need to adapt to these changes. If you want to be a major player for professional landlords, then understanding the limited company part of this market is a must. Being able to deliver specialist advice, and sort the wheat from the chaff in terms of the varying criteria specialist lenders offer in this area, is also vital, especially in an environment in which landlord income and their situation is increasingly complex.
There is also much to be said about using criteria search systems like Knowledge Bank, not just to keep up, but also because of the body of evidence required to justify the advice and the recommendation, especially if the client (in the future) comes to believe they could have got a ‘better deal’. As Nicola Firth, CEO of Knowledge Bank, said recently, “In five years there will undoubtedly be sourcing evidence that a ‘cheaper’ product was available but not necessarily the understanding or evidence that the client did not meet the qualifying criteria. Solid compliance evidence of criteria searches is now a business-critical activity.”
In that sense, it’s not just about ensuring your knowledge, expertise and research is top of the class in order to deliver your recommendation to the client, it’s also about future-proofing your records and evidence to show exactly why one product was chosen over another. The market (and particularly criteria) shifts so quickly that utilising the best of the tech and the systems available to advisers is becoming a non-negotiable.
For a market that moves on quickly, none of us would want a client coming back to question previous advice. However, having all the documentation available and being able to evidence your advice will be absolutely critical.
