UK lending has experienced an eventful few years. In April 2014 consumer credit regulation transferred from the Office of Fair Trading to the Financial Conduct Authority (FCA) affecting commercial brokers, who had to re-authorise under a tougher regime.
Then, in March last year, the Mortgage Credit Directive brought second charges under the FCA’s watchful eye, while a week later the buy-to-let market was hit with a 3% Stamp Duty surcharge on second homes.
The Stamp Duty reform was only one of a number changes introduced by the government to curb buy-to-let investment and free up the market for home owners. Others were the introduction of tougher underwriting standards for lenders and the upcoming cuts to landlord tax relief are set to be phased in from April. Yet at the same time liquidity has returned to the market.
And as so often happens when hurdles are thrown in one’s way, the industry looks for new ways to ensure business continues to run smoothly. As such, a number of businesses started to diversify their models and new cross-overs started to develop.
The times of “bog-standard buy to let” are over, said Coreco managing director Matt Lowndes. His firm is seeing more enquiries about bridging, houses in multiple occupation (HMO) and student property than before, as landlords have become more investment-savvy, he said.
“It’s difficult for a business to focus on just one area, within these areas you’ve got to be able to move,” Lowndes said. At the same time the proposition has to match up, as “it can be difficult to branch out because you’ve got to have the knowledge,” he said.
Brokerage the Buy To Let Club also detected an ancillary growth area to its core buy-to-let business. The firm is in the process of expanding its bridging arm, saying it saw this as a “huge growth area” and one “we have underserved in the past”.
By offering bridging services, the broker is able to provide clients with quick and agile funding options at a time when lenders are stricter on their underwriting requirements. “Given the current market conditions there are obvious opportunities to fill a gap where property investors want to move quickly to secure the best deals,” said managing director Ying Tan.
Second charge master broker Promise Solutions responded to the upcoming buy-to-let tax changes by offering landlords and their brokers free tax advice sessions with a tax expert.
This was also to protect brokers, who may not be qualified to give tax advice. “Mortgage advisers can easily stray in to inadvertently giving tax advice to their buy-to-let and commercial clients which could result in the wrong type of mortgage being offered or borrowers incurring unnecessary third party costs,” said managing director Steve Walker. “This is a significant risk and to help our introducers avoid it we have launched a service which provides their clients with a free 15 minute consultation with a tax expert.”
New business emerging
Also determined to capitalise on the tax changes is a group of property, legal and finance professionals, who got together late last year to form Buy to Let Restructuring, a firm dedicated to helping individual landlords restructure as limited partnerships in order to avoid punitive future tax charges.
The business works for a flat fee per client per property. But is there a new need for this new expense? “An individual cannot just form a limited company as there is a fairly complex set of legal documents that support the restructure. Without these, the company would have no rights to the profits,” the company explained.
Meanwhile, specialist network Connect for Intermediaries moved into the residential market in a bid to attract new members. The network’s core membership is made up of commercial brokers, who found themselves authorised by the FCA after changes were made to consumer credit.
Connect decided in January to give members with appropriate mortgage qualifications additional access to permissions for residential mortgages. “We have done this to help our existing members have a wider offering for their business and clients and also to attract new members who like our extensive specialist panel but would also like to advise on residential mortgages,” said chief executive officer Liz Syms.
She too agreed diversification was the key to running a business in the current marketplace. “I think it is important in the current market that advisers have access to as many lenders and product solutions as possible to help their clients,” she said.