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Buy to let: 2017 will be about adjusting to a new normal – Ying Tan

by: Ying Tan, managing director, Buy to Let Club
  • 21/12/2016
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Buy to let: 2017 will be about adjusting to a new normal – Ying Tan
Well, that was fun eh? Not since 2008 when the world’s banking system fell to its knees have we seen a year quite as bizarre as 2016.

In just 12 months we changed the UK’s relationship with Europe forever, saw a new Prime Minister arrive at Number 10, watched Labour almost implode, witnessed the election of the most controversial US President in history and adopted a whole new regulatory approach to our mortgage market – ironically from Europe. And now much of the initial shock of these generation-defining events has passed, we’re left looking ahead to the consequences.

Indeed, 2017 will be the year we see the real impact of the events of the last couple of years, not least in the buy-to-let market. Since 2015’s emergency Budget when then-chancellor George Osborne shocked the housing world with plans to reduce landlord tax relief, the market has been bracing itself. Landlords – and lenders – have reacted accordingly, with the limited company route becoming ever more popular. Some landlords have sold up. For those yet to make changes, profitability could take a serious hit come spring.

Most lenders have now adjusted their rental cover calculations and stress test rates, with landlord favourite The Mortgage Works the latest to do so. 2017 will therefore be about adjusting to this new ‘normal’. Lenders such as BM Solutions which took the more creative approach of ‘tailoring’ its rental requirements for higher rate clients will prove popular.

From an investor point of view, buy to let will become a much wider market. Buyers will look at areas they’ve perhaps not given too much attention to before. Locations in which property can be bought relatively cheaply but where the area has enough potential for rents to be hiked will become more attractive. The north could see a surge in interest. Cities such as Manchester and Leeds – and the surrounding commuter towns – are home to some potential property bargains while there is still room for rents to rise.

Buy-to-let rates are impressively low at present and will stay there for a while, however we need to be mindful that swap rates are on the rise and as a result we may see this reflected in fixed rates soon.

Prudential Regulation Authority rules will present minor challenges but aside from making applications more time-consuming – particularly for large portfolio landlords – it will simply be a case of landlords, brokers and lenders getting used to the new processes.

The market will remain flat. Lending has fallen significantly this year and I doubt we’ll see that pick up next year. 2018, when the dust has settled, will see figures start to rise again.

One thing is for sure, the role of brokers will be key. The mortgage market is becoming more complex. The introduction of MCD has paved the way for more blended solutions and combined approaches. Second charge and bridging are coming to the fore, landlords need more innovative solutions and residential buyers need more guidance. Get ready for a busy year brokers.

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