To quote a heavily used cliché from Alexander Graham Bell: “When one door closes, another opens.” This could easily sum up the mortgage market this year. 2016 is set to be a busy one, with changes coming in thick and fast.
The Mortgage Credit Directive (MCD) is transforming the regulatory landscape, while brokers and lenders are still coming to terms with George Osborne’s alterations to the tax burden for buy-to-let landlords, both through further tax on rental income and a 3% increase to second home stamp duty. I know many brokers are concerned about how this will affect their business, but for those able to keep pace with the change there are some strong opportunities out there.
Intermediaries play a vital role in the mortgage market, introducing over 70% of all of the mortgages arranged in 2015, even more so for buy-to-let. If anything, the MCD and new tax obligations are going to see this role grow over the coming 12 months.
The Chancellor’s interventions in the private rental market might be causing some short term concern for landlords, especially amateurs, but we do expect them to further professionalise the sector. One of the ways this is happening is an increasing number of buy-to-let companies being created by professional landlords. Our own research suggests that by the end of last year, the number of buy-to-let lending to limited companies had already doubled to 5,000 per month. Brokers that are aware of the different tax and administrative implications for professional landlords running limited companies as opposed to amateur landlords, will now find themselves well placed, especially those who have good links with a specialist lender.
Over recent months a number of lenders – including ourselves – have moved to review their rental calculations. As a specialist lender we have carefully tailored our response to focus on our target market of professional landlords, whilst taking a prudent approach for the amateur landlord trying to get into buy-to-let. It’s a more scientific calculation than simply hiking the rate at which we calculate loans, but we believe it will help open a number of doors for brokers with harder to place cases.
The Chancellor isn’t the only one introducing change. On 21 March the FCA’s MCD will come into play, and with it, further regulation on ‘consumer buy-to-let’. The greater regulatory burden will weigh heavily on some brokers, but overall will protect landlords, and be good news for the robustness and sustainability of the industry.
As March comes over the horizon, brokers should be aware which mortgage illustration their chosen lender is using, whether it is the new transitional KFI+ or the new European Standard Information Sheet (ESIS), and be confident they are well versed in both. It’s important that existing systems are able to support these as well.
The new regulatory landscape will also affect the second charge sector. A key part of all of this will be second charge knowledge spread more evenly across the market.
The European referendum is also on the cards for later this year, and it will be interesting to see how this plays out. The decision is unlikely to impact the health of a mortgage market that is growing steadily, especially with low interest rates continuing to support lending levels in the medium term, and long term borrower demand remaining well entrenched.
The whole industry is working hard to find its feet in the new regulatory landscape, but it will be a year of opportunity for those that can react quickly and find stable footing. The most important relationships to foster this year will be with your lenders and business development managers. By working closely and diligently with them, you should be able to ensure that you’re not left behind.
Adrian Moloney is sales director of Kent Reliance for Intermediaries