Specialist Lending - May 2017  

What lies in store for complex buy-to-let?

This article is part of
Changes in the complex buy-to-let market

What lies in store for complex buy-to-let?

Lenders, intermediaries and landlords alike hope there will be no further significant tax changes affecting the buy-to-let market.

However, with the scope of Brexit’s effect on the UK economy still unknown, and considerations that UK politics and regulation may reshape housing policy, there may be other headwinds that could create make all buy-to-let just that little more complex.

Politics

Brexit is the biggest issue on the agenda, with the full detail on the final negotiations still to be unveiled. The most immediate effect of any Brexit talk has so far been seen in the value of sterling, which plummeted to a 128-year low last year after the vote to leave the European Union. 

According to some economists, a fall in sterling will cause consumer price inflation, although current projections from the Bank of England do not see the rate exceeding 3 per cent. 

Although wage growth is below inflation estimates for the end of 2017 – current estimates put the average UK wage rise at approximately 2 per cent to 3 per cent. Moreover, interest rates are still low, thanks to the 0.25 per cent bank base rate. Commentators do not expect interest rates to rise significantly over the next 18 months.

As a result, it is unlikely there will be a significant strain on mortgage borrowers trying to balance repayments with rising household bills, despite any short-term stockmarket shock or further downward momentum in the sterling exchange rate.

Because of these factors, the Association of Mortgage Intermediaries (Ami) believes any Brexit-related uncertainty is unlikely to affect the mortgage market until 2018 at the earliest, and is more likely to show real impact the year after that.

Its latest economic outlook states: “Post-Brexit panic is a false dawn: realistically and practically speaking, the effects of the split between the UK and the EU will not begin to show for a minimum of 12 months after Article 50 is triggered

“In all likelihood, it will take a further 12 months before we really begin to feel any tangible impact either economically or fiscally."

While the UK braces itself for another general election on 8 June this year, some commentators believe there may be some respite for the mortgage market over coming months as the new government will focus on Brexit, rather than battering buy-to-let.

Pensions

Despite the tax takes on buy-to-let, subsequent raids on pension allowances – such as the reduction of the lifetime allowance from £1.25m to £1m – has made property more attractive as a long-term investment which promises some form of income in retirement.

In Retirement Advantage’s Home Truths report, 63 per cent of people surveyed recognised their pension was worth less than their property.