Head of Mortgages and Insurance Stephanie Charman explores the key highlights from the upcoming Stamp Duty changes from the government.
Plans to raise the Stamp Duty Land Tax (SDLT) on second homes were initially announced in 2015’s autumn statement from Chancellor George Osborne. Now the changes are approaching fast, and as of 1 April an extra 3 per cent stamp duty levy will be weighed on buy-to-let purchases and second homes (over £40,000). This could initially cause an increase in applications as people rush to complete purchases before the increase comes into effect.
Since the announcement on stamp duty in November, more details have emerged over the festive period. Although the specifics surrounding married couples, joint ownership, businesses, foreign ownership, multiple holdings and low value transactions are still being consulted over by the government, experts have already suggested that the stamp duty rules surrounding most areas affected are tighter than expected.
One of the more controversial specifics is that the additional stamp duty levy will be applied on all purchases, even those up to the value of £125,000, that fall under the criteria of a second home. This is a surprising move as even a main residential purchase on the first value band is not subject to any stamp duty land tax at all. Now as of 1 April, rates of stamp duty will be as high as 15 per cent for certain high value homes, which could indeed cause many investors to pull out of the industry altogether.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephen Adams, Head of Compliance at Mortgage Intelligence, explores some of the potential ways the Mortgage Credit Directive could impact your clients.
After the Mortgage Market Review (MMR) in 2014, few expected such a similar piece of legislation to be hot on its heels, let alone affecting the whole European region. But on 21st March 2016 the Mortgage Credit Directive (MCD) will come into effect, in an effort to further protect consumers and create a sole mortgage market in Europe.
Although there is some debate as to whether this further legislation will actually add additional benefits to consumers, it will impact both residential mortgage lending and lending for buy to let. The UK’s regulatory body, the Financial Conduct Authority, with implement the changes here, but what specific areas will be affected?
Buy to Let and Foreign Currency
More specifically consumer buy to let (CBTL), the MCD will cover the minority of buy to lets where the borrower has not taken out the mortgage for business or investment purposes, or as an Investment Property Loan (IPL). From March, certain consumers, or “accidental landlords”, that have had to take out a BTL as a solution to circumstances, such as an inherited home or Let to Buy transaction, will find they fall under the new regulation.
Foreign currency loans will now be subject to further regulation, in some cases restricting the loan size and requiring a warning around possible rate changes. The MCD defines a foreign currency loan as “a mortgage denominated in a currency other than that in which the consumer receives the income”, or if they hold the asset from which the credit is to be repaid”. Because of these changes, there are some lenders that are already withdrawing their lending on foreign currencies.
The Sales Process and the “ESIS“
The European Standardised Information Sheet (ESIS) has been one of the more contentious announcements as part of the MCD. Having to abandon our own Key Facts Illustration (KFI), the UK must now adhere to the new ESIS sheet, or in some cases a KFI Plus prior to application. Many lenders are already adjusting to the new rules, choosing whether to move to the ESIS immediately in March or temporarily to the KFI Plus.
Although the UK’s MMR in 2014 put us in good stead ahead of MCD, the changes are nevertheless conflicting with some of our own regulation that has been tailored towards the UK market. The general sales process, which in each country can vary markedly due to certain differences in mortgage systems and languages, will now be restricted to a standardised, continent-wide law that requires certain steps to be taken before a mortgage is completed.
Protecting the Consumer?
Some experts have criticised the MCD as potentially confusing for consumers, rather than protecting against financial detriment as was the goal of the changes. But either way the MCD is tightening further the rules around financial promotions to be clear and not misleading, which can only help further protect consumers.
The MCD also ensures that lenders are required to now issue binding offers to consumers as well as a seven day reflection period which will start on the issue of the binding mortgage offer. This is designed to deliver peace of mind and further security to consumers.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
In a mortgage industry that seems to change as much as the weather in the UK, we have compiled a short list of key financial dates worth noting for you and your client. From scheduled tax changes and the ending of housing schemes to annual speeches and financial events, these important dates will keep you and your clients ahead of the game in 2016.
16 March 2016: Budget Speech
One of the most important events in the industry calendar will be Chancellor George Osborne’s annual Budget speech. After a cautious pre-election budget in 2015, some experts are preparing themselves for more change as the government tackles the housing crisis head on.
Anticipated announcements are on pension taxation and changes to tax relief, possibly moving from a tiered system to a flat rate. But whether more changes are on the way remain to be seen.
21 March 2016: European Mortgage Credit Directive
One of the biggest, yet scarcely mentioned financial changes in 2016 will be the MCD, or European Mortgage Credit Directive. This will come into play in March, introducing an EU-wide framework of conduct rules for all mortgage firms.
Designed to further protect consumers and create a sole European market, our rules will be set by the UK’s Financial Conduct Authority (FCA). The biggest effect this is likely to have on the industry is on buy-to-let mortgages, foreign currency loans and the introduction of a European Standardised Information Sheet (ESIS).
1 April 2016: Stamp Duty BTL
Changes in Stamp Duty Land Tax (SDLT) come into effect on 1 April 2016. This will mean higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes.
Although designed to disincentivise the financial investment in UK property and increase supply for first-time buyers, some experts have questioned the tax increases and feel landlords are being unfairly targeted. Either way, the rush to complete applications has already started in order to avoid the increase in April.
25 November 2016: Autumn Statement
It may not get the same attention as the annual budget speech, but the government’s autumn statement has historically contained some surprising financial announcements, such as changes to stamp duty in 2014 and changes to tax rates last year.
December 2016: End of Help to Buy 2
December will see the end of the government’s Help to Buy: Mortgage Guarantee Scheme. Otherwise known as Help to Buy 2, it has helped many first-time buyers with only a small deposit onto the property ladder.
Unlike the Help to Buy: Equity Loan, which only covers new-build properties, Help to Buy 2 can be used for both new build and existing homes. The scheme is now being withdrawn as lenders bridge the gap, with many now offering mortgages on deposits of 5% without the assistance of government schemes.
TBC: A Base Rate Rise?
The possibility of a Bank of England Base Rate Rise has been the subject of financial speculation for several years now, ever since it was set to its lowest-ever level of 0.5% in 2009. Although many experts suggest that Mark Carney will announce a move on interest rates in late 2016, there are some that still say this will not happen until 2017.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.