Tax relief

As the end of the financial year approaches, buy-to-let investors will be mindful that mortgage interest tax relief will be phased out completely in April. The effects of this tax change have been implemented in stages over the last three years, giving landlords the chance to plan and adapt to its financial consequences.

The significant rise in limited company buy-to-let mortgages is a clear indicator that many landlords are considering the tax advantages of using a corporate structure for their property investment businesses. Around 35 per cent of our applications are currently for limited companies and we are frequently asked by landlords whether or not it is a good option for them.

This is not a question we can readily answer as the financial implications of using a limited company will vary depending on individual circumstances and portfolio size. We always recommend seeking tax advice, but we can also provide information that could assist in the decision-making process. For example, if a landlord client is seriously weighing up the benefits of setting up an SPV, providing mortgage illustrations for both personal name and limited company products could help calculate the overall cost savings involved.

Historically, limited company finance has tended to be more expensive than personal name finance although the gap is narrowing, and some lenders no longer distinguish between the two applicant types. In any case, it can be useful for landlords to be able to compare potential monthly repayments when deciding which route to take. Our online mortgage finder has a simple built-in filter for limited company products enabling visitors to obtain comparable mortgage illustrations without entering a complete fact find.

(NLA Landlords Tax course link - https://landlords.org.uk/landlord-tax)

Remortgaging

It is difficult to predict what effect the current political and economic climate will have on interest rates in 2020 as Mark Carney prepares for his departure from the Bank of England and Andrew Bailey gets ready to step in.

It has also been predicted by industry pundits that the buy-to-let remortgage market will slow in 2020 as more landlords are choosing 5-year fixed rates which lengthens the remortgage cycle. However, mortgage rates are still very low and now could be a good time for landlords to examine their whole portfolio to make the most of these deals.

If landlords start to feel more confident about the UK economy in the coming months and are considering expanding their portfolios, releasing equity from existing properties is a popular way of providing a deposit for a new property purchase. There are plenty of options to choose from for all property types and situations, including many that come with incentives such as a free valuation and free legal fees.

For clients looking for a like-for-like remortgage, switching lender is not the only way to secure a lower rate. There is now a growing number of lenders who offer retention products to existing customers which can provide a quick and easy way to refinance.

It is expected that gross buy-to-let lending in 2019 will be recorded at around £37 billion but what are the prospects for this sector in 2020?

Some industry pundits have suggested that buy-to-let lending may fall slightly during the coming twelve months as the relatively buoyant remortgage market in 2019 begins to slow; more landlords are now choosing 5-year fixed rates rather than shorter term products which is lengthening the remortgage cycle.

The trend for longer term fixes was stimulated by the 2017 PRA regulations impacting affordability assessments and rent stress tests. For our buy-to-let mortgage business, over fifty per cent of applications were for 5-year fixed rates in 2019.

The purchase market was sluggish in 2019, due in part to the reticence among professional landlords caused by the uncertainty surrounding Brexit. However, following the general election in December and the success of Boris Johnson’s ‘Let’s get Brexit done’ campaign, the path ahead seems clearer; we are definitely leaving the EU.

Now that the political furore of 2019 has abated, there may be a boost to the buy-to-let sector as portfolio landlords release a pent-up demand for new property investment and begin resurgence in the appetite for purchase finance.

It is certainly a good time to obtain buy-to-let finance as strong competition in the marketplace has led to prices being driven down, with rates currently below 1.50 per cent with some High Street lenders, but rates may have bottomed out.

There is still economic uncertainty in the UK as we endeavour to leave the EU in the best possible circumstances and until the new Governor of the Bank of England is in situ. Depending on Brexit developments and other socio-economic factors, there could be some movement in interest rates in the coming year, although a difficult thing to predict without a crystal ball.

What does seem clear is that lenders have a strong appetite for buy-to-let business and some have adapted their lending criteria to widen their appeal to landlords. For example, there are now more lenders offering buy-to-let finance for expats, limited companies, HMO landlords and AirBnB.

This trend is likely to continue in 2020 with lenders modifying their propositions as the demand for more specialist or ‘complex’ buy-to-let mortgages continues. Recently published figures from UK Finance for buy-to-let lending in 2018 indicated that specialist lenders recorded higher rates of growth compared to banks and building societies.

However, following the PRA regulations relating to ‘professional landlords’ (those with 4 or more mortgaged buy-to-let properties), there is still a divide between those lenders servicing large property portfolio investors and those opting to limit their offering to smaller scale landlords. This is likely to remain the case in 2020, with lenders deciding on their target market and honing their propositions accordingly.