Specialist Lending - May 2017  

How to overcome obstacles in complex buy-to-let

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Changes in the complex buy-to-let market

The number of liable transactions with transaction value between £250,000 and £500,000 in Quarter 1 of 2017 is 10 per cent lower than Quarter 1 of 2016.

For the financial year 2016-17, the number of transactions is 2 per cent lower than in 2015-16.

This could be the result of two things. With the introduction of the surcharge on second properties, as of April 2016, many landlords sought to beat the deadline by pushing property transactions through – to avoid what might have been four or even five-figure tax penalties.

The second reason could be the rise of landlords incorporating properties into a special purpose vehicle (SPVs). This form of incorporation has proved popular among landlords since the 3 per cent SDLT hike came into effect. 

Martin Reynolds, chief executive of SimplyBiz Mortgages, comments that IFAs should have an “Understanding how limited company buy-to-let works, and the structures each lender will accept, plus how they can be set up and checked if already incorporated.”

He adds, however: “While limited companies are definitely one solution, they are not the only solution. Tax advice should be sorted out by the landlord, then the appropriate product structured by the adviser, using all the lenders available.” 

Shaun Church, director at Private Finance, is cautious about incorporating, especially for complex cases. “The only way of getting around the changes is to invest through a limited company, and these come with much higher rates of interest.

“However, there are fewer mortgages, and these come with much higher rates of interest. There are also more tax implications to consider, that make moving to a limited company structure far from straightforward.”

3) Shift to complex

Because higher-value properties have been hit the hardest since the SDLT hike was introduced, many landlords could consider diversifying away from the high-end, single-occupant residential property and towards HMOs or similar complex buy-to-let structures.

For example, HMRC figures show there has been a 14 per cent fall in transactions with a value above £500,000. 

Mr Church comments: “A healthy property market needs movement and fluidity at all levels and across all tenures, but it appears that the changes have unfairly targeted the upper-end of the market – which does little to help the cause of first-time buyers.”

Therefore, investors wanting a regular income stream without high tax burdens could consider diversifying their property portfolios will various types of buy-to-let, complex and vanilla.

“Complex buy-to-let can require a bit more work than a standard product”, says Jeremy Duncombe, director at Legal & General Mortgage Club, “and can take more time to arrange.

“However, complex buy-to-let mortgages are often the best option for some investors, and the only option, in some cases. The challenge for advisers, therefore, is to work closely with a number of lenders to see which one would be the best match for a client’s current situation, and offer the best deal.”