Brokers have been told they will need to become experts in buy-to-let to avoid the pitfalls of a more specialist sector following tax and regulatory changes.
Speaking at a Financial Adviser Mortgage Masterclass in London today (15 November), Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, said the growing trend for landlords to use limited companies in order to avoid the reduction of tax relief meant they needed to get three levels of advice.
They will need to see an accountant to obtain tax advice, a lawyer who understands their entrance and exit strategies, and a good broker who can strike the right mortgage deals for the client.
He said: “This is becoming a more specialist market; therefore, you have to be an expert as opposed to buy-to-let being something you do occasionally.”
Mr Sinclair warned that many landlords remained in the dark about the phasing out of mortgage tax relief by 2020 – a change that will significantly cut rental incomes.
Limited companies are unaffected by the changes, and Mr Sinclair said that in the specialist buy-to-let business 50 per cent of current loans are now made to limited companies.
But he also pointed out that the need to collect information on a landlord’s whole portfolio, as mandated by the Prudential Regulation Authority, could bring benefits for brokers, as it will enable them to amalgamate properties to get better deals.
Mr Sinclair also warned about landlords hiding their tax liabilities and urged brokers to ensure they avoided the risks of dealing with such clients.
He advised that brokers use suspicious activity reports (Sars) if tax evasion is suspected, and to tell the lender they have done so.
He said: “The worst thing that can happen to you is the lender looking at all the data will go ‘that tax liability does not look right’. They will issue the Sar and challenge where you are on the panel.”
Mr Sinclair said he “could not stress enough the need for independent tax advice”, warning that brokers’ liability insurance may not be enough to cover them in the event of a subsequent complaint.
“This is going to require a degree of specialism,” he said. “[Buy to let] is a niche where you can focus your attention.”
In a panel discussion following Mr Sinclair’s presentation, industry experts were united in their view that buy-to-let is evolving into a more specialist sector.
Jane King, mortgage adviser at London-based Ash-Ridge, said she expected amateur landlords to drop out of the market, adding many of her clients were looking at other options that would provide better returns.
Louisa Sedgwick, director of sales at Vida Homeloans, said: “Amateur landlords will probably go by the wayside. It will become more of a professional type of market.”
She predicted landlords would start to diversify into properties such as houses in multiple occupation and holiday lets, which may provide more rental income.
Echoing Mr Sinclair’s point, she said: “You have now got access to the whole portfolio, so you have got 20 or 30 properties and you start to look at how you can support the landlord going forward.”
Charles McDowell, commercial director at Aldermore, added: “I think it makes perfect sense. Because [landlords] are becoming more professional, they will need more specialist advice.”
He added that with the advice process becoming more complex, brokers may take more time to process cases, and procuration fees may need to increase to reflect that.
But he said the cost of the increase would have to be borne by the client in terms of a higher rate, for example, as Aldermore would not be able to absorb it.
Mr McDowell said: “If in six months we go ‘yes, it is clear brokers and advisers are putting in a lot more work’, then it is absolutely right we will look at that.”
simon.allin@ft.com
