Stephanie Charman
Head of Mortgages and Insurance Stephanie Charman reflects on an interesting time for buy to let with the upcoming changes to tax relief.
April’s alterations to tax relief will soon join several other key changes that the buy to let sector has faced in recent years. It is an interesting time for the industry, with the changes being another political step towards curbing a sector that has seen steady growth since 2008.
Once the changes are phased in, tax relief will revert to a flat rate of 20%, which means landlords on higher incomes may find themselves losing more in mortgage interest payments. But what does all this mean for buy to let going forward?
The story so far
The buy to let sector has been targeted for a raft of changes. One of the most impactful of these was the April 2016 stamp duty changes on second homes, which added 3% to the stamp duty bill. This was seen as a longer-term solution to reduce the incentive to invest.
The Prudential Regulation Authority’s consultation paper on lending standards has meant a tightening of criteria for buy to let lending. This includes stress testing against higher interest rates and increasing income cover ratios (ICRs) up to 145% or more.
Lenders have acted promptly to adjust their criteria. This means potential challenges for both those considering remortgaging who took out their mortgage under previous affordability, and investors looking to purchase another property. The effect that this has on landlords will depend predominantly on the amount of their mortgage in relation to the value of the property and the rent they receive.
Another contested change
Despite changes to stamp duty on second homes and new stricter affordability rules, it is the 2017 changes in tax relief that have seen some of the strongest protestations. To avoid the changes, some landlords will be considering a limited company set-up going forward, in order to be exempt from the reduction in tax relief.
A survey by the Royal Institute of Chartered Surveyors (RICS) revealed that as a result, investors will likely be reducing the number of properties they own. With the changes in tax relief adding to the previous alterations, the survey found that 26% more contributors expected landlords to scale back their portfolios, rather than expand them.
Although some of the extra costs may be passed on in the form of rent increases, it is just as likely to have the effect of freeing up property for first-time buyers. But with house building still not at the level required to reach government targets, affordability remains the overriding obstacle for many young homebuyers.
An uncertain future
Some lenders are already reporting a drop in buy to let lending, which has resulted in some traditionally buy to let-only lenders moving into the residential space. It seems that all involved in the sector, whether landlord, lender or first-time buyer, are keeping their eye on the effect of all these changes.
The government’s housing whitepaper, released in February, also looks to further assist developers in building the much-needed homes and streamline the planning system. The whitepaper also announced that the government would be generally changing policy towards supporting renters, as well as homebuyers, by removing agent fees and encouraging longer term tenancies.
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.
Head of Mortgages and Insurance Stephanie Charman takes a quick look at the current signs surrounding mortgage rates in 2017
It has been widely publicised that the Bank of England base rate remains at its lowest ever level. This means that many home buyers and home movers have seen relatively low interest rates. Those looking to remortgage could also currently benefit from a competitive fixed rate deal, to avoid moving onto their lender’s standard variable rate.
But is this era of low borrowing costs coming to an end? Are we about to finally see a return to higher interest rates?
The end in sight for rate cuts
After many months of rate cuts from lenders, some experts feel this period of intense competition is finally coming to an end. But despite warnings of an upcoming increase in rates in 2017, some big lenders are currently reducing their rates even further and announcing best buy contenders. It seems that as long as competition remains strong, lenders will continue to compete to reduce rates where possible to entice new business.
Uncertainty reigns
Talk of an increasing base rate took a back seat after the vote on the EU Referendum. But will Brexit’s eventual commencement actually act as a catalyst of change after a period dominated by a poor economic outlook? Only time will tell, but it was only last year that many in the market were factoring in for a rate increase that they were certain would happen. It seems that the only thing that is now certain, is uncertainty.
In the meantime, competition between lenders to offer low rates continues, which makes it an opportune time for low borrowing costs and remortgage opportunities.
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.
Head of Mortgages and Insurance Stephanie Charman explores whether the Government’s new garden homes are a possible answer to the UK housing crisis
A divisive plan to create nearly 50,000 homes within 14 garden villages across England has been announced by Housing Minister Gavin Barwell. Ministers have backed the building of the villages, which will be located on sites that include former airfields and much coveted green belt land. These new villages are smaller versions of the Government’s planned “garden cities”, each containing between 1,500 and 10,000 homes. But are they an answer to the UK housing crisis?
Where will the new homes be located?
Ministers have confirmed that the new villages will not be extensions of existing towns or villages. Instead, the Government has said that they will be “distinct new places with their own community facilities”. With several garden towns also announced, the whole “garden” project could deliver 200,000 new homes.
The first round of locations include sites in Cornwall and Cumbria, which makes them eligible for a share of a £6m support fund. The former Deenethorpe airfield in Northamptonshire will be one of the key locations. This 600-acre plot has been approved to include a village green, shops, a community hall and over 1,000 homes.
Other locations include an ecovillage in West Carclaze, Cornwall, where 1,500 homes will be built. These new energy efficient homes will sit alongside space for self-build and custom-built housing, as well as a brand new primary school.
Will they help solve the housing crisis?
One of the proposed solutions to the housing crisis has been the general decentralisation of housing and planning. With this in mind, Gavin Barwell said that the village development would be led by local communities, not central government. The Campaign to Protect Rural England (CPRE) also said the plans would work to relieve the crisis if “done well with genuine local consent”.
But as well as the anticipated opposition to building on green belt land, the plans have also met some scepticism. Labour’s shadow housing secretary John Healey said: “In the last Parliament they promised a flagship ‘garden city’ at Ebbsfleet. Since 2012, we’ve had 32 government announcements on Ebbsfleet but less than 500 homes built … the country deserves a proper plan for fixing the housing crisis.”
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.
Head of Mortgages and Insurance Stephanie Charman takes a look how AIG’s Spencer Family can help advisers talk to clients about protection.
Protection provider AIG Life has announced the launch of a fictitious family called ‘The Spencers’. It seems case studies and real life scenarios are currently very effective in helping advisers talk to clients about the benefits of cover, which is why AIG have created The Spencer Family. Spanning a full four decades, this relatable family will help advisers further illustrate how AIG protection policies affect people of all ages.
AIG want to begin 2017 with a new way to explain how their protection products can benefit the lives of ordinary people and their loved ones. The extensive family covers 1,219 years’ worth of lives, to demonstrate AIG propositions and how they help people facing difficult economic and medical circumstances.
Consisting of 33 members, the Spencers will bring to life the real uses of protection products. AIG intend to make the family members a big part of their campaigns in 2017, as well as some of their literature throughout the year. The family will be used to highlight protection topics such as care needs and children’s critical illness cover.
In an under-insured nation, we embrace any way that helps you show why protection is such a good idea. 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.
If you want to find out more about who the Spencer Family are, visit the AIG page to discover a fresh way to ensure your clients understand how AIG products can benefit and aid them.
With plenty of options out there for first-time buyers, Head of Mortgages and Insurance Stephanie Charman takes a quick look at five ways your clients can help their children with buying their first property.
In a time when we are continually facing property price increases, it may be hard for first-time buyers to save up enough money for a mortgage deposit or have adequate affordability to purchase their first home. To help, we have put together five ways your client may be able to help their child overcome the difficulties of getting onto the property ladder.
Gifted deposit
A simple way your client can help is to offer their child all or part of the required deposit. By raising the deposit from 5% to 10%, it could help improve the child’s affordability and reduce their monthly repayments. If they do decide to gift a deposit, they must sign a written agreement to confirm it is a gift, otherwise this may be treated as a loan by lenders and could affect the child’s affordability.
Equity charge
If they don’t have the cash available to gift to their children, they could consider equity charge. This is where they put a collateral charge on the family home instead of their child paying a deposit. It is however worth bearing in mind that not all lenders allow this in their criteria.
100% guarantor mortgages
Another option is a guarantor mortgage where a charge is placed against your client’s home. This means that the amount their child can borrow is based on a combination of their own and their child’s income and assets. This could allow them to receive a 100% mortgage. However, there is associated risk, as they would be guaranteeing that the repayments are made. This means that the guarantor’s home could be at risk in the event that their child failed to pay.
Family offset mortgages
Alternatively your client could consider a family offset mortgage. This type of mortgage enables parents to offset the value of their savings against their child’s mortgage so they may pay less interest. This is because their savings offset the sum of the mortgage that interest is charged on. As a consequence they may not always receive interest from their savings.
Getting them mortgage ready
Perhaps the best way your client can help is to make sure their children are ready for the responsibility of applying for and having a mortgage. They could make them aware of budgeting and affordability so that their children have a realistic idea of what owning a home may cost them each month. After all it is not just the mortgage repayments they have to think about.
Experts have also reported that many younger people are unaware of the extra costs that arise on top of having a deposit, such as stamp duty and surveying fees as well as solicitor fees. If they need help to save money for this, the parent could help them open up a Help to Buy ISA or a Lifetime ISA. These ISAs will support their children with their savings whilst also receiving a 25% government bonus on limited deposits.
Additionally, they could offer advice on improving their child’s credit score, as this is a common problem when first time buyers apply for a mortgage. A credit score is often an important part of lenders’ underwriting process to decide whether the applicant is suitable for the product.
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.
With changes in tax relief for landlords just around the corner, Head of Mortgages and Insurance Stephanie Charman takes a look at why some are considering the much-publicised limited company option.
With rates holding low at 0.25%, investing in property could still be a good idea for many. This is despite the tax changes that are due to begin from April 2017, at which point the tax relief that landlords of residential properties receive for finance costs will start to be restricted to 20%. This change will be gradually phased in to be fully in place by April 2020.
So why limited companies?
Limited companies set up for the sole purpose of buying and letting property, will not be affected by the upcoming changes. That’s why many landlords are considering setting up limited companies to mitigate the personal impact. As this demand for limited company loans increases leading up to April, some lenders have updated their product ranges to cater for this emerging demand.
Research from leading buy to let specialist lender Kent Reliance has revealed that more landlords are already moving their buy to lets into limited companies. In fact, the lender revealed that over 100,000 buy to let mortgage loans were issued for limited companies before December 2016. This is double the figure of the whole of 2015, suggesting that more and more people are considering the option.
But is limited company the right choice for your client?
There is no easy answer, although it may be a possible solution for some circumstances. They may be considering using the limited company strategy whether they are a professional landlord, an investor with a portfolio or even looking at purchasing their first buy to let property.
Although there is no way to avoid the changes in stamp duty on second homes, setting up a limited company and becoming a corporate entity may indeed mean avoiding the changes in tax relief. But this is a complicated area and these tax changes will often affect each landlord differently. That’s why talking to you about their mortgage needs and seeking tax advice from an accountant, will help prepare your clients for any decision on their buy to let investment.
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.
As we wind down the year and look ahead to 2017 and what is likely to be another interesting 12 months for the mortgage market, it is a good opportunity to look back at what has been an eventful 2016.
Whether dealing with the impact of a scheduled change in housing policy, or reacting to surprise announcements, we have remained resilient and worked together to ensure you are up to date and able to provide the same first-class advice to your clients.
But what events had the biggest impact on the mortgage market and how do they fit in with other alterations facing the industry?
March: Mortgage Credit Directive (MCD)
Put in place to create a framework of conduct rules, the MCD is a piece of European legislation designed to foster a single market to protect consumers across the continent. The requirements came into force on March 21st and lenders then chose to either move straight to a European Standardised Information Sheet (ESIS) or a KFI+ on a temporary basis.
But now that the UK has voted to leave the EU, the MCD has become another future consideration for the market. Experts now believe that the MCD could well be up for negotiation following Brexit, with some calling for it to be integrated into the exit strategy by the Government and to use the opportunity to implement a set of rules better suited to the UK market.
April: Changes to Stamp Duty Land Tax
When it was announced that the stamp duty surcharge on BTL and second homes would increase by 3% on 1st April 2016, a surge of investors pushed to ensure their deals were completed before the deadline. This was a big move by the government, with relatively little warning to the market given it was only announced in the 2015 autumn statement.
But despite industry predictions that the change would greatly curb the BTL market, the sector has remained buoyant and an October report from Rightmove shows that BTL enquiries are up 30% since May’s slight slump following the rush.
June: EU Referendum and “Brexit”
Despite only representing the decision to leave the EU, the shockwaves of the referendum result reverberated around the country and left many pondering the effect the eventual activation of Article 50 could have on the mortgage market. What did follow was wild fluctuations in sterling, stock prices and shifts in consumer confidence.
But advisers have generally found that consumer appetite remains strong despite the uncertainty that followed the Brexit decision. It is likely that we as a nation will have a better understanding of the possible effects that the actual exit itself will have on the industry, once it comes closer to realisation.
October: PRA Paper on Underwriting Standards
Technically known as the CP11/16 paper, the Prudential Regulation Authority’s (PRA) announcement followed a consultation on underwriting standards within the BTL market released in March 2016. Since the release of the official document in October, many have been looking at how these standards will fit in with the other BTL changes, such as stamp duty and next year’s changes in tax relief.
Now that the PRA have issued its supervisory statement on BTL underwriting standards, relevant firms will now have to apply affordability testing and use a sufficient Income Cover Ratio to determine whether personal income is adequate to cover mortgage repayments.
December: Help to Buy 2
With confirmation that Help to Buy 2, or the Help to Buy: Mortgage Guarantee Scheme, is to be concluded at the end of 2016, many are looking ahead to the market and asking whether first-time buyers will be sufficiently supported going forward.
Despite the forewarnings of when each branch of Help to Buy would end, there has been some confusion over whether all Help to Buy schemes are ending. The good news is the Help to Buy: Equity Loan Scheme still has several years left and early signs signify that lenders are now offering high LTV mortgages, which experts hope will negate the impact on the market of ending Help to Buy 2.
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.
One of the biggest announcements this year is the full integration of Friends life with Aviva, after Aviva’s original acquisition in 2015. This has been followed by a new range of flexible individual protection propositions for consumers. Aviva believes they have brought together the best from both existing propositions, developing an exciting suite of products and new added benefits.
What is Aviva’s Protect+?
Aviva has introduced a compelling package designed and shaped by the needs of the client. They recognise that changing client needs means more choice for a wider range of people. Their three new headline products are Aviva Life Insurance+, Critical Illness+ and Income Protection+. All these include a range of benefits and options that can be added to the standard products.
Aviva’s new support package of value added services is called Support Plus. For an extra monthly cost, your client can select additional covers and have the option to upgrade their critical illness cover for not just themselves, but their children as well.
What are the added benefits?
All clients taking out one of the new Aviva protection products will benefit from access to Support Plus and its range of added value benefits to help them through an already difficult time. These benefits include Second Opinion by Best Doctors, BUPA Anytime Health line and Counselling and Carer Support provided by Workplace Options.
For an additional cost, Aviva customers are also able to add global treatment or fracture cover to any of the three core products. Extra care cover can also be added to enhance critical illness cover.
By Stephanie Charman, Head of Mortgages and Insurance at Mortgage Intelligence
Looking ahead to the mortgage market in 2017, we have compiled a short list of key changes and events to keep your eye on. This will help keep you and your clients ahead of the game in 2017.
January 2017: Help to Buy 2 no more!
Now that the government has confirmed it will end the Help to Buy: Mortgage Guarantee Scheme, or Help to Buy 2, at the end of 2016, many are wondering what the future holds for the first-time buyer market after the scheme has helped so many people onto the property ladder.
Whether the market is ready for life without Help to Buy 2 is not fully clear, even though a growing number of lenders now have, or will have 95% products available outside of the Help to Buy scheme.
The 2017 autumn statement may indeed look to address the risk to the high LTV market, perhaps with the addition or alteration of housing schemes. Either way, the support of the low deposit arena is crucial, with the current affordability issues facing first-time buyers in the UK.
March 2017: Budget Speech
One of the most important events in the industry calendar will be Chancellor Philip Hammond’s annual Budget speech. After a turbulent few months post-BREXIT some experts are preparing themselves for more changes as the government tackles the possible consequences of leaving the EU.
April 2017: Tax relief changes for Buy to Let
The tax relief that landlords of residential properties get for finance costs will be restricted to 20%, which will be gradually introduced from April 2017 and will be fully in place by 6 April 2020.
These changes could have implications for landlords’ tax positions, but a basic rate tax payer may not see an impact. However, buy-to-let property rental income could now affect the overall tax position, which is the unintended consequence of moving from being a basic rate taxpayer to a higher rate taxpayer.
Limited companies, set up for the sole purpose of buying and letting property, will not be affected by the changes. Therefore some landlords are considering setting up companies to mitigate the personal impact of the tax relief changes.
April 2017: Lifetime ISA
The new Lifetime ISA will launch in April 2017 and allow people to save up to £4000 a year towards buying their first property or for retirement with a 25% government bonus.
Many people may be more sensitive to the details after some people felt slightly misled by information regarding the original Help to Buy ISA and deposits on property. It is currently unclear how many accounts will be available in April 2017, as lenders are unable to commit to firm launch dates due to delays on account details from the government.
November 2017: Autumn Statement
Chancellors have been required to present two economic updates a year since 1976. Yet, there are reports that the autumn statement may be scaled back or even scraped in the future. Chancellor Philip Hammond wants to move away from ‘gimmicks’ and focus on fiscal forecasting. But some suggest this may be an impossible task with the uncertainty of BREXIT.
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.
Head of Mortgages and Insurance Stephanie Charman looks at what the future holds for the Buy to Let sector and asks what the industry can do to prepare.
Analysis of the Buy to Let market by the Council of Mortgage Lenders (CML) has predicted the possible future of the sector, including the impact of changes, potential consumer trends and actions to be taken by lenders. The study used rental and capital value data to evaluate the potential market impact of a general move towards enhanced underwriting criteria.
What will be the impact of the 2017 changes in tax relief?
The Buy to Let sector has been a big driving force behind much of the mortgage growth in recent years, but the CML are keen to highlight that the sector faces some big challenges in the near future. Some important policy alterations are upcoming, including the changes in tax relief to be phased in from 2017.
Not only could these changes affect volumes of business, but also change the way investors approach their portfolio plans. The main aim of most of the changes is to increase the cost, and therefore the incentive, of property investment, which in turn should decrease demand in the sector.
Is this the biggest upcoming change?
Despite the tax changes next year, the CML suggest that it will actually be changes in affordability testing on Buy to Let borrowing at higher interest cover ratios (ICRs) and stressed rates, which will have the biggest impact on Buy to Let.
Now that the Prudential Residential Authority (PRA) have issued its supervisory statement on underwriting standards for the Buy to Let sector, relevant firms will now have to apply affordability testing and use an ICR to determine whether personal income is sufficient to cover mortgage repayments.
Remortgaging accounts for a significant part of the Buy to Let market, and remortgaging capacity is driven in part by how much rents have changed since the original loan was taken out. Now that the PRA have issued the statement to deploy affordability testing, some consumers may find it harder to remortgage to another lender.
What will any changes in consumer behaviour look like?
The CML analysed the impact that the PRA statement could have on buying behaviour, using the new rules around ICRs and stressed rates on new lending and remortgage activity. The CML predicts that this change would see a shift in buying behaviour, to a focus on lower value, often higher yielding property, which would increase the collateral risk profile of new purchases.
What can the industry do to prepare for the future?
According to the CML, there is still very much a long-term case for investing in housing as part of a balanced portfolio, which means the Buy to Let market will continue to thrive despite changes and criteria adjustment. But the CML also suggests that with one in five house sales being property investment, there are worries among policymakers that sudden changes in investor demand could result in house price volatility.
The CML believe that overall, the market will see a moderation in the growth rate of Buy to Let lending in the short term, with the Council suggesting that lenders need to start considering tracking and improving the control of the collateral risk profile of any new Buy to Let lending. The CML believe the result of the PRA statement could be that more equity is injected in the market, with slower growth in lending volumes as a result.
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.