After a second year of strong growth in 2014 year (growing by around 30% on the previous year to £27.4bn), as we entered 2015 I couldn’t help thinking that buy-to-let lending had finally recovered from the beating it took during the financial crisis in 2008/09. This was also a time when we saw the vast majority of lenders exit the sector leaving only a handful such as BM Solutions, part of Lloyds Banking Group to hold the fort.
For many of us working in buy to let, 2015 has felt like a year of almost unprecedented change with potential challenges to come. And with all this we can sometimes lose sight of the really important things, such as the fact the market has continued to grow. While the final figures for lending in 2015 are yet to be confirmed, the indications from lenders are suggesting a figure of £34/35bn will be recorded and another year of substantial growth.
So what is all the fuss about? From my frequent conversations with mortgage lenders it’s clear there is much to fuss about as the majority invest considerable time, effort and money in building systems to help cope with the partial regulation of buy-to-let lending brought about by the Mortgage Credit Directive. The directive will see a new categorisation of landlord giving rise to the term Consumer buy to let as distinct from what we all know as Business buy to let. Consumer buy to let will capture most transactions where someone decides to let out their current residential property in order to purchase a new home to live in, commonly known as Let to Buy. The additional work, resource and funding has definitely meant that lenders have had less time to innovate this year.
During the summer months, the Financial Policy Committee (FPC) which sits in the Bank of England published its report into the Stability of the UK Financial System and drew particular attention to the growth in buy-to-let market highlighting concerns that this growth had the potential to destabilise the housing market. The report subsequently saw the Chancellor by-pass any form of consultation by granting the FPC powers of direction over buy to let lending with the industry now watching intently ahead of any potential moves to control buy to let lending activity.
In the July Budget, the Chancellor also announced plans to change the way in which tax relief on finance costs will be treated for landlords effective on a sliding scale between 2017 and 2020. While we all have some time to understand the true impacts, it will soon be upon us so some specialist tax advice would definitely be recommended for both new and existing landlords..
So, back to my original point, It’s clearly been an incredibly busy year for the buy-to-let sector but given that only around one third of property supporting the Private Rental Sector is financed by buy-to-let mortgages and only around 17% of total mortgage lending in the UK will be to buy to let, the sheer amount of attention the sector is facing is really quite baffling. We are in danger of losing sight of some pretty strong fundamentals if we are not careful. The Private Rental Sector is playing an incredibly important part in supporting the overall housing agenda by providing much needed housing for those people who either chose to rent because it suits or those who simply can’t afford or don’t qualify for a mortgage of their own. And let’s not forget, there is also an acute shortage of housing supply and people have to live somewhere.
Where does all this leave landlord sentiment? Well, according to a recent BM Solutions survey in conjunction with BDRC Continental, Landlord confidence has been hit hard by recent Governmental announcements affecting the PRS. Most notably, confidence levels in the PRS and landlord’s own lettings business have seen statistically significant declines when benchmarked against Q3 2014. Clearly landlords have a good understanding of the various changes though with Over 9 in 10 claiming awareness of the changes announced and the vast majority reported that they had at least some idea of the implications of the changes for their own lettings activity.
More optimistically for landlords though was perceived tenant demand remaining strong with 4 in 10 reporting that demand has increased in their areas of operation during Q3. Those with 11 or more properties to let are the most positive around tenant demand, whilst those currently in an unprofitable situation are more likely to report falling demand.
So in closing, it’s worth mentioning that 2015 has also seen a number of new lenders enter the buy-to-let market which is a clear sign that confidence in the sector has well and truly returned. My wish for the New Year has to be for all of the negativity surrounding the buy-to-let Market and Private Rental Sector subsides and the powers that be really do start to recognise that there is an important job to be done in filling the void left by a considerable shortage in housing supply and a tightening in the availability of residential mortgage finance.
For further information on Buy to Let mortgages both for individuals and limited companies please contact RLA Mortgages on 0844 858 4420 or visit the website www.rlamortgages.co.uk
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