The onslaught of government measures deterring buy-to-let investors continues this week, with changes to underwriting for portfolio landlords coming in.
The market has already borne the brunt of changes to Stamp Duty and other tax changes, with the Council of Mortgage Lenders (now UK Finance) downgrading its buy-to-let lending expectations to £35bn in 2017 and £33bn in 2018, a decrease from its previous forecast of £38bn in each year.
The current buy-to-let reality leaves brokers searching for creative solutions to growth.
Chris Schutrups, managing director of The Mortgage Hut, said volumes have already been affected.
“We’ve noticed a drop in demand from what I’d call the occasional landlord, taking money from pension pots, for example,” he said. “They weren’t sophisticated landlords and didn’t understand the complexities. The taxation changes and portfolio changes have really taken those people out of the market.”
He added that the vast majority of unsophisticated investors did not understand the consequences of the tax changes and there may be liquidations ahead.
Ray Boulger, senior technical manager for John Charcol, said purchase volumes have fallen sharply and will remain low for the foreseeable future. However, he says there are remortgage opportunities for brokers and portfolio changes will increase the need for landlord advice.
“The changes for portfolio landlords are another reason to use a broker. Some landlords may have built up relationships with lenders and done business directly in the past, but that may be harder now.”
Brokers who have not worked with portfolio landlords in the past will need to decide whether they want to get up to speed in that sector. “They will have to decide whether there is enough business for them to justify the time and effort that will be needed,” Boulger added.
Liz Syms, chief executive of Connect for Intermediaries, agreed that added complexity means there is an important role for brokers.
“Different lenders’ approach to the portfolio rules differ widely. While some lenders have really tightened up their criteria, others have stayed very much the same,” she said.
“As long as a broker knows the lenders that will still be able to help, or works with a packager who does, they can guide their clients to someone who will still lend to them.”
Syms added there are other opportunities, some of which lie outside of the changing portfolio or tax rules. For example, furnished holiday lets as well as both commercial and semi-commercial property.
“Like-for-like remortgages also lie outside of the portfolio rules, including if a landlord is capital raising for business purposes – as long as this is not raising money to grow a buy-to-let portfolio. Bridging loans of under 12 months also lie outside the rules.
“So there are still opportunities for both landlords and the brokers who advise them as long as they are up-together on the changing market or working with someone who is.”
Mortgage Hut’s Schutrups agrees there are still opportunities left in buy-to-let. He points to lenders allowing landlords to top up rental income and five-year fixed deals.
However, he added: “It’s creating an advice gap. People are taking five-year fixed rate deals to meet affordability criteria when it isn’t necessarily right for them, depending on attitude to risk and how long they intend to own the property.”
There are also opportunities in other sectors. “Five years ago there was a lot of vanilla lending and a little bit of complex. Now you have great challenger banks with options for complex income,” said Schutrups.
“We are looking at complex income and adverse credit. Lenders aren’t just chasing margins, they are innovating in criteria.”
He added that product transfer is a big opportunity that has opened up to brokers in the last year. “Now a large proportion of lenders are trying to engage with us to retain their customers.”
Meanwhile, John Charcol’s Boulger pointed to second charge and lifetime mortgages as possible areas of expansion for brokers.
The lifetime mortgage presents a particular opportunity. “It is not currently a large part of the market (£3bn) but is growing rapidly and there are a limited number of brokers handling it,” he said.