Your IndustryMar 24 2016

Buy-to-let market adapts to changes

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Buy-to-let market adapts to changes

The Council for Mortgage Lenders latest market commentary says: “In 2015, we find more than seven out of 10 buy-to-let properties in Yorkshire, the north of England, Scotland and Northern Ireland were exempt from stamp duty as they were all below the £125,000 threshold.

“This (the change to syamp duty) risks influencing liquidity in the mainstream market and creating uncertainty which is unlikely to dissipate until later in 2016.

“It may also have unintended consequences, such as disrupting housing chains and affecting first-time buyers buying with the help of their parents.”

Selling

As a result, some landlords may be considering selling. The National Landlords Association says one way for people to make money out of property is to sell, and has projected 500,000 properties from the private rented sector could go in 2016.

This could be followed by about 100,000 properties a year after the initial 500,000, significantly shrinking the private rental sector.

Given the impending change to landlord tax allowances, buyers are looking for ways to improve their tax position Steve Griffiths

This could as Lee Travis, head of professional development at the Society for Mortgage Professionals, suggests, have the effect of “cooling the housing market by making buyers, not sellers, the price drivers”.

SPVs and the Budget

More small buy-to-let investors have been taking advice on how to create a limited company called a special purpose vehicle (SPV), as this was originally believed to be a way of protecting property purchases from the 3 per cent hike.

Steve Griffiths, head of sales and distribution from Kensington, says: “We have seen a considerable increase in the number of landlords looking to set up limited companies for their buy-to-let investments.

“Given the impending change to landlord tax allowances, buyers are looking for ways to improve their tax position and an SPV is one way of doing this.”

Andrew Montlake, director for Coreco, adds: “We have seen a massive growth in enquiries from landlords looking to purchase in a company name rather than their own personal name.”

However, in a policy statement supporting the Budget, the chancellor confirmed those buying inside a limited company will still be hit by the surcharge - so both corporate and invididual residential property purchases will be subject to the 3 per cent hike.

Yet according to Charles Haresnape, group managing director of mortgages at Aldermore Group, this blow will not have affected many residential landlords at present.

He explains: “Lending through an SPV is still a relatively niche area.

“There has been a significant increase in these kinds of institutional investment in recent years, in part because of the development of new student accommodation, but this trend has not as yet been replicated into non-student accommodation.”

You can also offset mortgage interest against a tax bill as a business expense within an SPV.

Mark Harris, chief executive of mortgage broker SPF Private Clients, believes this alone means far more buy-to-let purchases will be made through limited companies.

He says: “Arguably the changes in mortgage interest tax relief were always the biggest hardship for landlords so moving an existing portfolio into a company still makes sense for many investors as corporate entities can offset mortgage interest against their tax bill as a business expense.”

Mr Travis agrees: “It may prove to be a loophole that is quickly plugged, but as it stands, [limited] companies can still get mortgage interest relief at the marginal rate, which may be higher than the basic rate of 20 per cent.”

Flexibility

Meanwhile, many providers have been focusing on ways to give more flexibility to potential landlords.

Mr Travis says: “Given the coverage generated by the idea of SPVs, those willing to lend to SPVs should see a surge in demand soon enough.

“This will doubtless precipitate a proportionate increase in capacity. It should see the introduction of more flexible products, with lenders willing to increase LTVs even further, and the promise of more competitive rates hitting the market.”