Understandably a large part of the mortgage market appears to be taking stock of the EU referendum vote, and what it might mean for the sector. In terms of the buy-to-let market, 2016 has brought with it some sizeable events – the stamp duty deadline and now the vote for Brexit – which will clearly have an impact. Next year we will see the scaled introduction of the mortgage interest tax relief changes and they too will shift and reshape our sector.
One might even go so far as to say we’re in an ongoing period of flux that appears to have no end date; indeed, thinking about the timescale for Brexit, we might be looking at a prolonged pre-negotiation, the negotiation itself, before we actually begin to extricate ourselves from the EU. It’s even quite likely that five to 10 years hence we’ll still be working through these issues; even without all the water which will flow under the buy-to-let sector bridge during that time, we can all appreciate the ups and downs that are likely to impact on the sector.
That said, we need to focus on the positives. There has already been some criticism of those who might ‘talk down’ the market, perhaps even more so when it comes to buy-to-let, when in fact the sector’s fundamentals should actually lead you to a more positive appraisal. One that you should certainly be sharing with clients as well as the potential risks.
Of course, we’re uncertain about where house prices might be heading, we’re also uncertain about how housing transactions might fare, but in terms of housing supply levels, in terms of owner affordability measures, in terms of high LTV mortgage availability, in terms of rental demand, these all point towards a private rental sector which will remain a much needed part of the UK’s housing market strategy.
Now, the cynics amongst you might respond, ‘What strategy?’ but to my mind there’s been no doubting that over the last six years we’ve had two governments who (at the very least) have had something akin to a strategy. There’s been recognition that housing supply levels were far too low, and there’s also been a focus on helping first-timers onto the ladder. Unfortunately, in the last year or so, there has been a shift towards hitting landlords and the buy-to-let market in a misguided view that this will move the supply of property from the private rental into the owner-occupier sector, support for greater levels of house building and greater numbers of first-timers.
To my mind, this has not been the right way to go about it, however now that we effectively have a ‘new’ Cabinet with (without doubt) a new Prime Minister and Chancellor, what will the response be? Initial soundings from Mrs May suggested new homes and first-time buyers would be a priority – we await to see the results of this – while some have suggested that because Phillip Hammond is (or has been) a landlord in the past, he might well veer away from the measures of his predecessor. My own view is that I’ll believe it when I see it, and given the work that is going to need to be done in terms of Brexit, then I suspect there will be an inclination across many areas not to make further changes before the new ones have even taken place.
Therefore, if you have landlord clients enthused by the fact we might see a rolling-back of the mortgage interest relief changes for 2017, then I would suggest they not hold their breath. Instead what they should be doing is looking at how they can approach their financing/refinancing now and what you, as the adviser, can do to support them in securing the funds they need, and potentially lessening the cost. Let’s also not forget that, as things stand, buy-to-let lenders are going to be bringing in a number of new underwriting measures that are likely to curb their lending activity, and loan to value, possibly as soon as the start of next year, and therefore now might well be the time to get the best possible deal for clients, perhaps over a longer-term than they would ordinarily go for.
Looking at the political and economic state of affairs, adding in the uncertainty around where the housing market might be heading, and introducing the numerous changes which will impact on buy-to-let, you can see why there might be some confusion over what the future might bring. Perhaps it is therefore best to focus on the here and now – lenders, like ourselves, are still lending; funds are available; competition is good; options like limited company vehicles can make sound sense and we have seen a sharp increase in applications for limited company loans; the more specialist buy-to-let areas like HMOs are increasingly catered for; the list goes on.
The sector is, without doubt, in a different place to just 12-18 months ago and we have to manage our way through this period – opportunities do still exist however – semi-/professional landlords will want to continue and add to portfolios and they will require the services of advisers to do this. This is all happening right now, and we should not get too distracted by an unknowable future that we miss the opportunities in the present.
Bob Young is chief executive officer of Fleet Mortgages