A panel of experts at a recent FTAdviser and Aldermore seminar discussed the prospects for buy-to-let. Natasha Wren reports.
The ushering of tighter taxation and regulatory changes amid the precarious territory of Brexit policy has left some investors uncertain over the future direction of the buy-to-let market.
Opening the Financial Adviser Mortgage Masterclass sponsored by Aldermore, Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, emphasised concern about the multiple disconnects arising due to the government’s attempt to take heat out of the market.
The legislative reforms of a 3 per cent stamp duty, followed by the gradual phase out of income tax relief for landlords, stricter portfolio underwriting rules and new income stress rates on borrowing was branded by Mr Sinclair as a four-phase assault against the buy-to-let market.
Mr Sinclair criticised the unaccommodating environment for landlords as a “quite nasty” and “politically misguided” policy direction, undercutting those who are providing homes when there is a distinct reliance on the rental sector.
According to Mr Sinclair: “The scale of decline in buy-to-let transactions will inevitably have consequences of higher rents and fewer available properties.
“This is a reflection of how the government has not adequately addressed the problematic disparity in the growth of earnings versus rental prices”.
Transforming into a specialist market
Mr Sinclair advised brokers that the buy-to-let sector is transforming into a more specialist market and will require a thorough understanding of the client’s entrance and exit strategies and that a tax accountant is crucial in this process.
The buy-to-let market has not lost its way; it is simply changing direction and advisers should be primed – Louisa Sedgwick, Vida Homeloans
He said: “I urge brokers to use suspicion in the right way and seek independent tax advice to prevent incidents where tax liabilities are hidden by landlords and a suspicious activity report (Sars) is issued by lenders.”
In the panel discussion that followed, Jane King, mortgage adviser at Ash-Ridge Private Finance, said: “Regulators are suffocating the market - this is set to create a major retraction into a small specialised sector as the expectation is many amateur landlords will exit the market and are unlikely to return.”
However, Louisa Sedgwick, director of sales at Vida Homeloans, commented: “The buy-to-let market has not lost its way; it is simply changing direction and advisers should be primed for landlords looking to gain more rental income by diversifying their portfolio to include holiday lets”.
Charles McDowell, commercial director of mortgages for Aldermore, averred that while the “market will contract significantly by about 20 per cent, buy-to-let is still an attractive investment and intermediaries will become a greater source of reliance for landlords”.
Fellow panellist Martin Stewart, founder and director of London Money, was more receptive towards what seems to be a political desire to return to a “traditional residential mortgage market” and transform the buy-to-let market into an appropriately regulated and professional sector.
According to Mr Stewart, the rationale behind stringent legislative reforms is to eliminate the volume of amateur landlords.
He explained: “Any monkey could have bought property and made money out of it. What we have are landlords owning an abundance of properties and sucking supply out of the market”.
Mr Stewart added the London housing market in particular will polarise post-Brexit, commenting: “The transaction in decline is more as a result of a disillusioned rate of return guarantee that in reality is not likely to carry through in such a complicated environment”.
Although the tax changes have had an effect on buy-to-let, panellists believed that Brexit – in whatever form it might eventually take – will not have a significant effect on the market.
Adding to this, Mr Stewart warned that although he considered Brexit to be a “phoney war” that the real concern lay in the results of immigration negotiations.
He stated: “if we lose thousands of our skilled labour force, which we can already acknowledge is happening - then a riskier outcome is a significant derailment of solving the housing shortage, which again represents a failure to deliver the necessary assets to the market and economy”.
With supply and demand acting as the most crucial factor in determining the state of instability of the buy-to-let sector, Mr Stewart said: “There should be more responsibility to focus greater attention on gearing up planning and construction of UK housebuilding to ensure genuinely affordable homes“.
In response to the topic of foreign investors engaging in buy-to-let, Gary Haynes, national head of private client services at RSM, said Brexit and interest rate rise has not deflated their appetite for the buy-to-let market.
Instead, he commented: “For many overseas buyers can continue to take advantage of the attractive low rates of the pound and experience the benefits of strong yields across buy-to-let residential projects”.
Liz Syms, chief executive officer at Connect Mortgages, shared this outlook, adding: “Prices dropping should be perceived as a positive thing as assets can be built at a more affordable rate, which means foreign owners are likely to be more effective in this new buy-to-let environment”.