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Experts warn of further buy-to-let changes

Advisers and their landlord clients should not rule out further changes to the private rental sector, according to buy-to-let experts.

A panel at the financial services expo — made up of Adrian Moloney of OneSavings Bank, David Whittaker of Keystone Private Finance, and Steve Cox of Fleet Mortgages — said ongoing political uncertainty and the potential for a change of government could lead to more alterations for landlords, especially in regards to tax.

The panel, which was speaking last week (May 15) did not rule out the idea that a future government could further cut back mortgage interest tax relief for landlords.

Landlords have already seen the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 and cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.

Mr Moloney said: “I think it would be a very bold move because you’d have to start changing tax legislation potentially across other areas and I think HM Revenue and Customs is currently happy with the level of tax coming from buy-to-let landlords.

“But there is no way of knowing how another government could act.”

Mr Whittaker, agreed that a government of a different leaning to the current Conservative one could make changes to the tax system that would “create more waves and more damage”.

Labour’s Jeremy Corbyn for instance has long spoken of the need to fix the ‘broken’ housing market.

In January, the Intermediary Mortgage Lenders Association warned that landlords would start to feel the pinch of new regulation in their tax returns for the first time.

And the effects are already visible. UK Finance lending trends, published last week (May 16), showed that about 5,000 new buy-to-let purchase mortgages were completed in March — 9.1 per cent fewer than in the same month in 2018.

The panel was also asked about the recent government proposal to ban section 21 evictions.

Last month (April 15), the government proposed a consultation on abolishing the so-called ‘no fault’ section 21 notices, which give landlords the power to evict tenants at the end of their tenancy without a reason.

At the time, landlords warned there were dangers, such as a shortage of landlords and less competition for consumers, if the reforms were not carried out correctly.

Mr Whittaker said since the announcement, the government had accepted that in order to shake up how a section 21 order works, there had to be an improvement of the processes around section 8 notices — similar to a section 21 but where the landlord has to give a reason.

He said: “There has been a recognition that the government can’t get rid of the existing rules without having something in its place.

“The government appears to know that if they have a continuing lack of political appetite to run a social housing policy, let alone fund it, they can’t afford to mess up the private rental sector too much.”

Mr Whittaker went on to say that lenders were part of this debate as it would ultimately impact their landlord customers if they were unable to get possession of their property.

Mr Moloney added that until there was more certainty surrounding the buy-to-let market, lender and borrower activity would be impacted.

Mr Cox agreed that the government’s wider reliance on the private rental sector meant it had to reconsider such substantial changes.

He said: “I think the most important part is that the government, whether reluctantly or not, needs a buoyant and thriving rental sector because a social housing policy – or lack thereof – is not going to take care of the issue.”

By Imogen Tew

Source: FT Adviser

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Landlords to feel effects of buy-to-let changes

The private rental sector may be approaching a “watershed” moment as landlords begin to feel the effects of recent tax changes reflected in their tax bills for the first time this month, a trade association has warned.

The Intermediary Mortgage Lenders Association (Imla) warned the introduction of various tax and regulatory changes since 2015 would begin to have an effect on property availability and tenant choice in the rental sector.

The body expects policies to contribute to higher rents for tenants, which would in turn make it harder for those who are trying to save for deposits to buy their own homes.

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.

Imla believes this year’s tax return will be the first time many landlords will see the effects of these policies on their earnings.

Kate Davies, executive director of Imla, said: “These measures continue to erode the buy-to-let sector, and in turn the whole private rental sector.

“In fact, we may be approaching a watershed, as landlords will only be starting to feel the adverse effects of income tax changes when these are reflected in their tax bills for the first time this month.”

Ms Davies suggested a recent period of subdued rental price increases may be disguising the true effect of these changes on the rental market.

She said a report published by IMLA in early 2018 had shown the “continued erosion” in buy-to-let, with net investment in rental property “collapsing” by 80 per cent over the course of two years.

She added: “It is no coincidence that, despite a growing contribution from build to rent, 2017 brought an abrupt reversal to 16 years of uninterrupted growth in the stock of private rental dwellings.”

Ms Davies said: “Buy-to-let landlords represent a key element of the private rental sector, providing homes for a very wide spectrum of households and including many benefit claimants who would in the past have had access to social housing.

“We consider it vital that no additional measures should be introduced which could risk further eroding the health of the private rental sector or the well-being of those who rely upon it.”

David Hollingworth, associate director of communications at London & Country Mortgages, said: “The raft of change to the buy-to-let market, which includes stamp duty and tighter criteria as well as the reduction in tax relief on mortgage interest, was always going to hit the market hard.”

Some landlords will have already factored the tax changes into their calculations but some may still face a nasty shock when they submit their returns, said Mr Hollingworth.

He added: “Demand for rental property is likely to remain strong and whilst there was a feeling that the buy-to-let market may have been growing too rapidly there’s equally a risk if it contracts too far.

“If supply dries up then rents will inevitably rise, especially with tighter lending criteria in play. Nonetheless where there’s demand there will still be investors and many established landlords are likely to retain an interest in adding to portfolios where the numbers stack up.”

Source: FT Adviser

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Lenders and brokers ‘too quiet’ over PRA Buy to Let changes

Mortgage lenders and brokers have been too quiet over the Prudential Regulatory Authority’s (PRA) changes to buy to let lending, according to the National Landlords Association (NLA).

The NLA says that despite the significant regulatory changes to lending criteria and the application process for portfolio landlords, introduced by the PRA over the last 18 months, more than half 55% were still unaware.

The findings, from the NLA’s Quarterly Landlord Panel, shows that just 8% of landlords said their lender had been in touch about the changes, with 16% saying they had been contacted by their broker.

Almost seven in 10 landlords 68% said neither their lender nor broker had made contact with them about the changes. However, the findings show that brokers and lenders may have concentrated their efforts on larger portfolio landlords, with 26% of portfolio landlords saying their broker had been in touch, and nine per cent saying their lender had made contact.

Richard Lambert, CEO at the NLA said:

“The PRA’s changes will greatly affect the ability of landlords to find new finance and continue to provide good quality affordable housing to those who need it”.

The NLA says that it’s vital landlords are supported through the changes, having issued broad advice earlier in the year urging landlords to contact their mortgage broker or bank before committing to any new property or finance.

“We hope that that the reason such a significant number of landlords haven’t been contacted is because their existing deals are simply not yet close to expiry. However, it’s in lenders’ and brokers’ own interests to speak to landlords about the changes sooner rather than later, otherwise it could mean a missed opportunity in terms of new business.

“If landlords don’t get the right support and information about how the changes will impact their existing loans, then it could mean higher finance costs that many just won’t be able to absorb”.

Source: Property118

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Stuart Marshall: buy-to-let changes may mean more expats doing buy-to-let

The reduction in buy-to-let mortgage tax relief may cause more people to emigrate abroad and invest in UK buy-to-let from overseas, the managing director of Liquid Expat says.

Stuart Marshall is the managing director of Expat Packager, which submits UK buy-to-let cases for expats, and Liquid Expat Mortgages, which offers buy-to-let mortgages for expats.

Marshall said: “Lenders not already operating in the expat marketplace will have to start thinking about tapping into it because of more people leaving and becoming expats.

“With Brexit, a lot of the talent pool will leave and this is good for our business. People are realising there’s a big world out there and can experience more cultures and not living in the UK, paying UK taxes.

“If you’re an expat there’s genuinely never been a better time to take out mortgage finance. A lot of the specialist lenders have been looking for new niches.”

The mortgage tax relief changes, phased in over four years, mean 75% of finance costs are deductible from rental income from 2017 to 2018. The year after it will be 50%, the year after that 25% and from 2020 none.

Marshall added: “Some landlords may be selling off some units in the UK because of being hit harder with tax changes.

“We’ve seen more expats wanting to buy into a limited company to do buy-to-let deals but we’ve been educating them, showing a lot of the time, it’s not worth the time and the cost to set up.

“Expats can earn a certain amount in the UK before paying tax and property purchasing may not take them over that amount, meaning they wouldn’t be affected by these tax changes.”

Landlords have had to pay 3% more stamp duty since April 2016, something which Marshall found positive for expats.

He said: “It hasn’t had a negative impact on the number of mortgage applications from overseas landlords. It just means they are looking at more efficient properties and doing due diligence on them with the cost involved and rental yield.”

The Prudential Regulation Authority brought in regulation from 2017, requiring applicants with four or more mortgaged buy-to-lets to provide more information about their existing portfolio.

Marshall said: “There won’t be much change because in the expat marketplace lenders are more cautious, always looking at affordability and there’s more underwriting too.”

He said that it’s this manual underwriting that makes the process take longer. “Getting tested and certified passport copies is the most difficult because a British embassy may be far away and there may be a long wait.”

Marshall reckoned that with technological improvements, the process will quicken eventually.

He said: “It will do but will take one major player with a lot more digitally driven processes and once established, lenders will have to follow suit.

“Marsden is the first lender we have trialled doing these passport checks digitally and achieved a 100% success rate, meaning they all worked digitally without needing having to go to an embassy.”

He felt the expat marketplace for lenders is as competitive as ever and new entrants must add something new.

He added: “There is space for new entrants if they have a clear criteria and rate that fills the gap existing lenders are not covering.

“We aim to continue to bring new lending products expats can benefit from, make application process smoother and educate all the expats that see getting a mortgage in the UK as a problem.”

Source: Mortgage Introducer