The last 12 months have been an interesting and challenging time for the mortgage industry. With big changes to the buy-to-let market, the UK’s vote to leave the EU, and the Bank of England’s announcement to cut interest rate from 0.5 to 0.25 per cent, it would be an understatement to say that 2016 has been a busy year for advisers and lenders.
As the year draws to a close, it is an opportune time to review some of these momentous market changes and determine how we can prepare for 2017.
This year’s biggest shake-up in the mortgage industry was the Buy-to-Let changes that came in April with the government’s 3 per cent rise in Stamp Duty for second homes. As a result of this change, the first quarter of the year saw a spike in borrowing for buy-to-let and second homes, with buyers pushing to complete purchases before the new rules came into effect.
The impact of this rise in demand was clear to see. The HMRC reported that the number of completions on residential property over £40,000 soared to 97,390 in March, before dropping to 80,370 in April. By comparison, April 2015 saw 98,570 transactions completed.
At the moment, Buy-to-Let is still an attractive proposition for investors. However, with more changes coming into play next year, it is vital that advisers are staying in close contact with their landlord clients to ensure that they fully understand any changes that may affect them.
For instance, from spring next year, the government will gradually begin to phase out higher rate tax relief for landlords over a period of four years. As a result, buy-to-let landlords will no longer be able to claim up to 45 per cent tax relief on their monthly interest payments, but instead will only be able to claim the basic rate of 20 per cent.
With so much commentary around the mortgage interest tax relief changes, many landlords will be looking at the structure of their portfolios to limit their exposure to tax. Brokers have a vital role to play in flagging the impact of the tax changes to clients, and to point them in the right direction of a qualified accountant.
That said, brokers should avoid giving further detailed commentary or debate around the topic of tax treatment of BTL portfolios - as this could be construed as advice and relied on by the customer.
Another big change to the market was the introduction of the European Mortgage Credit Directive (MCD) in March, which caused lenders to make changes to their systems and processes across a number of areas.
The second charge sector, in particular, was impacted by the MCD, as it now has to comply with the same regulation as the first charge market and start following Mortgage Conduct of Business (MCOB) rules. What this means is that all brokers are now either obliged to consider second charge as an alternative to remortgaging or make it clear to the client that there are other alternative finance options that they may wish to consider.
Now that the UK has voted to leave the EU, the MCD will likely be up for negotiation as the UK prepares its exit strategy, which could create further challenges for the market. However, until we know what relationship the UK and the EU will have in the future, lenders will need to abide by their obligation under the MCD for the foreseeable future.