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David Whittaker, Managing Director, Mortgages for Business

The good and the bad of buy to let mortgage lending in 2015

It’s been a rollercoaster of a year for landlords, which despite much bad press, hasn’t been all bad. Actual lending figures won’t be published by the Council of Mortgage Lenders until February but I anticipate that gross lending to be in the region of £32 billion, up from £27.4 billion in 2014.

Many industry commentators and politicians looking for quick, crowd-pleasing wins, attribute the rise in buy to let to have come at the expense of first-time buyers and whilst I would agree that there is an element of truth there, it’s not the whole story. The continued lack of both social housing and new home building is probably the real villain of the piece. Not a problem that can be solved overnight.

You could say that the Tories started it, privatising the social housing sector by the back door - selling off LHA stock but failing to replace the supply for those who were not in a position to buy. And of course, years and years of successive governments on both sides of the political spectrum burying their heads in the sand, failing to come up with a comprehensive housing policy for a growing population.

It’s no wonder that private landlords picked up the slack. It was a business opportunity after all. But now they have usurped estates agents, as most vilified, when in truth, the majority are hardworking, well-intentioned individuals, tarred by the brush of a rogue few. What, I think, really irks people about private landlords is the idea that money is being made out of a basic right -  a roof over one’s head. But we live in a democratic society and the people have chosen capitalism as the way forward for the next five years, so what do they expect?

Stricter regulation hasn’t helped the home-buyers’ cause and because buy to let is viewed as a commercial not consumer transaction, it is not shackled in the same way.

But regulation of buy to let is coming and we need to be prepared. From March next year, we see the introduction of Consumer Buy to Let which aims to provide a distinction between “accidental” landlords who may need consumer protection and “professional” landlords who operate their property portfolios as a business.

Accidental landlords will include the likes of those who have inherited a property that is let out and those who need to move for work say, and choose (for whatever reason) to keep hold of their original home and turn it into a buy to let.

What the government is trying to do, is move the buy to let market away from being primarily an investment to being a business. So, people who have or are thinking of using buy to let as an alternative pension strategy beware!

From 2017 onwards tax relief on finance costs (including mortgage interest) to higher tax rate paying individuals is being restricted in progressive downward steps to the basic rate (20%). Those landlords who currently sit just below the upper tax rate threshold, could find that the changes tip them over the edge.

What is to be done?

No doubt, some will leave the sector. Those still serious about the business of buy to let are already making purchases via corporate structures, namely SPV limited companies, which are not affected by changes to individual tax relief. Rather, they will pay corporate taxes, and corporation tax is due to be reduced to 18% in the coming years.

Despite the not inconsiderable costs - remortgaging, capital gains tax, stamp duty to name but a few - many landlords are also selling (not transferring – you can’t) their already personally owned portfolios to their newly established SPVs. Much financial pain now, for a better prospect in the longer term, although if landlords can demonstrate to HMRC that they are running their portfolios as a business (rather than just as an investment), then the capital gain on their properties can be “rolled over” into the cost of their shares in the SPV for CGT purposes.

It’s not a fix-all solution but it does look like a way forward and the number of enquiries regarding purchasing property via a limited company has rocketed since July.

We are advising ALL of our customers to take professional tax advice to find out where they stand now and in the future, so that any decisions they make about their portfolios come from a position of understanding.

The last bombshell of 2015 for landlords (we hope) came in the Chancellor’s Autumn Statement when Mr Osborne announced a 3 percentage point surcharge on the purchase of additional residential property costing £40k+ from 1st April 2016. That includes buy to let and second homes.

I do think that most landlords who have taken advice and decided that the private rental sector is still a viable business option, will simply suck up the additional costs and soldier on.

Those who are planning to incorporate and/or expand their portfolios will clearly want to complete as many purchases as possible before by 31st March to keep costs as low as possible. So for many there is a “helluva” lot of work to be done in a very short space of time.

Need a reality check?

According to our countdown clock on the homepage of our website, there are just 99 days to go until the stamp duty surcharge kicks in.

Our ongoing management information tells us that the average number of days from initial enquiry to buy to let mortgage completion is 95 days.

If that sounds too worrying, the average number of days from buy to let mortgage offer to completion is 57 days.

So there is time to get sorted but not much.

Also, bear in mind that if you require a buy to let mortgage for an SPV, there are only nine lenders offering these types of products (110 or so at the last count), so be prepared for delays as everyone tries to pile in at once.

And there will be delays despite the industry gearing up for increased activity in Q1. The supply chain – lenders, brokers, surveyors, lawyers – will fall over somewhere.

If you really intend to beat the deadline, I urge you not to wait until the New Year. Get in touch with us now. We will do everything we can to help you complete your purchases before the surcharge kicks in. We are open until 2pm on Christmas Eve and we are working in between Christmas and New Year’s Day.

Finally, and if it doesn’t sound too trite, I wish you all a very merry Christmas and a prosperous New Year.