First we had a mad rush in the first three months of the year as landlords and investors stampeded to get transactions completed before HMRC brought in a 3% surcharge on all Stamp Duty charged on second homes and buy to lets. This caused absolute mayhem in the market with conveyancers and valuers really struggling to turn deals around quickly.
We also had the introduction of the Mortgage Credit Directive which brought in regulation for consumer buy to let and residential second charges in March. The Financial Conduct Authority took over consumer credit supervision and distributors and brokers who had previously been outside their purview, became all too aware that the screws were turning on compliance.
Landlords meanwhile lost their wear and tear tax relief allowance and started to contemplate the reality of reducing tax relief on mortgage interest being introduced from April 2017. Lenders began unceremoniously raising their rental income ratios and interest rate stress tests for buy-to-let lending, making it harder to secure buy-to-let finance. Landlords responded with a rise in the number incorporating in order to avoid the profit-eroding effects caused by these shifts.
Then transactions fell off a cliff in April and May – partly just because of the rush in Q1 but also because people seemed to hang fire in the run up to the June UK referendum on European Union membership. Then, against all the pollsters’ expectations, Britain voted to exit the EU, throwing a spanner into the markets, causing the pound to plummet (it hasn’t recovered) and massive volatility in stock markets.
Longer-term interest rates rose, pushing up lenders’ funding costs and there were rumours that some banks suspended new specialist lending funding lines – at least temporarily – while the dust settled.
In August we saw an extraordinary set of measures unveiled by the Bank of England, which cut the base rate to an all-time low of 0.25 per cent, started pumping more money into the economy through an extended asset purchase scheme and introduced a new term funding scheme designed to force the banks and building societies to pass on the rate cut to borrowers. Which, for the most part, they have.
Then in September the Prudential Regulation Authority published its long-awaited proposals for regulation of the buy-to-let market, recommending tougher interest-rate stress tests and rental income ratios as anticipated and requiring lenders to underwrite landlords’ full portfolios where they exceed four properties.
Then in November – as if we needed more uncertainty – Donald Trump stormed the US, beating front-runner Hillary Clinton to become the US’ 45th president elect. This caused less immediate volatility in the markets than Brexit but in the weeks following the result, long-term interest rates started to rise again after several months of coming down. This has caused longer-term fixed rates to rise marginally already and we would expect that to continue into 2017.
And then, yes, there’s more, in late November the Treasury awarded the Financial Policy Committee with powers to cap loan-to-income and loan-to-value ratios where they consider the buy-to-let market is overheating.
So that’s the year we’ve just had, what next? Well if I had one Christmas wish, it would be that the authorities leave the market alone! We have had a lot of change in the past 12 months and I for one think that these many, many changes need time to bed in. Transactions and lending are not out of control by any stretch of the imagination and if they are to hold up next year, buyers of all forms of tenure need to see a bit of stability.
We can’t control inflation, wages or property prices and these have the potential for fluctuations in 2017. Let’s leave regulation, tax and interest rates alone for long enough that buyers are given the chance to review the landscape and plan for the future.