Speaking at Mortgage Solutions’ Buy to Let Market Forum, BM Solutions head Phil Rickards (pictured) said this should be a key avenue to explore for advisers as some lenders have lots of customers still on SVR.
“We’ve seen a dramatic increase year-on-year for the last five years in product transfer business and I’m not entirely sure that every landlord realises they’ve got that as an opportunity,” he said.
“So if you’re not contacting your customers and giving them an opportunity to product transfer, for which we pay a proc fee for example, that’s a really simple business idea.
“There’s a big growth area in product transfers still to be had out there, so contacting your customers and staying in touch with them is really important,” he added.
‘Everybody will do them’
Kensington Mortgages new business director Craig McKinlay also raised the importance of product transfers with the audience in Manchester.
“Product transfers have been booming, especially in the high street, and while fewer specialists do them, I think everybody will end up having to do them at some point,” he said.
He continued: “Product transfer is still quite an immature market despite some lenders doing it for many years.”
Include advisers in retention
McKinlay urged brokers to ensure they completed a full re-advice process when doing so.
But he also noted that customers may prefer to opt for a simpler process without paperwork and potential valuations for only a small cost saving.
And McKinlay was disappointed that some lenders decided not to include advisers in the retention process.
“We’ve just done it ourselves and included the broker,” he said.
“I think lenders forget that it’s the broker that has the relationship with the borrower and they then place that customer with the lender.
“So including brokers is very important, some lenders don’t, but I think some lenders would like to do so but some technical issues remain,” he added.
The lender said research carried out by BVA BDRC on its behalf highlighted gaps in knowledge and erroneous market perceptions by landlords which brokers could use to engage their clients.
Presenting the results at Mortgage Solutions’ Buy to Let Market Forum, Aldermore national sales manager Matt McCullough (pictured) said this was a clear request from landlords.
“Across individual and portfolio landlords, the key feeling that came out of the research is that they all desire more engagement from brokers,” he said.
“And that’s a real key theme – people think the engagement is lacking across the buy to let space from brokers and lenders.
“Whether that’s how things are done, what’s changing and why, the key thing is these people really want you to reach out to them.
“So speak to them, tell them what can happen next, why things have changed, and how you can help,” he added.
Clear lack of engagement
McCullough noted many landlords believe the changes mean there is a reduced product range on offer for them which, he said, was “staggering” given there are around 2,100 buy-to-let products available.
And there was a real fear from around one in three portfolio landlords that they would be rejected for the mortgage, emphasising the work still to do.
“Clearly the lack of engagement from lenders and brokers is tell-tale there because clients feel there are fewer options today than are actually available,” he added.
And McCullough also reviewed data from UK Finance on the overall state of the buy to let market.
The average stress rate applied to buy to let mortgages last year was 5.5 per cent. However, while some lenders could offer lower terms, some were also stressing at 15.6 per cent.
“So you can understand some landlords thinking that it’s making it difficult to obtain what they thought was a standard mortgage five years ago,” he continued.
“Landlords really need advice on the whole of the market given the changes that have occurred.”
Growing demand to transfer ownership
The Aldermore research noted a growing demand to transfer ownership of properties into a limited company, not just for completing new purchases.
One in ten small landlords said they had already done so, with 12 per cent considering it. Fifteen per cent of portfolio landlords had transferred ownership already and 10 per cent were planning it.
McCullough explained that this was a key area for brokers to explore as they could use their portfolio to fund these transfers.
“Clearly we want them to seek tax advice first,” he said.
“But these are the avenues now where people can remortgage to release capital to buy these properties in limited company names.
“Or they can release capital from the portfolio to pay any capital gains that are attributed to themselves.
“All these things that are happening in the background, which you may not think of, landlords really want engagement with because we can take them on the journey and the next steps of their portfolio growth,” he added.
Spanning a five-year fix
McCullough also highlighted that landlords who took out a five-year fixed rate deal in 2014 would be facing a significantly different environment when they remortgage this year.
“Everyone knows it’s become a lot more difficult to get a BTL mortgage across the line in the last few years with all lenders, not just the high street,” he said.
“For clients who took out a five-year fix in April 2014, look at what’s changed in that landscape, just as they are on their one product.
“So imagine how a landlord is feeling now. There’s been so many changes since they took that product, but it is in our hands to outline the future,” he concluded.
The lender also urged brokers to understand more about beneficial interest terms which were “causing a lot of debate” within the market at present.
Beneficial interest works in the transition of properties between a partnership agreement and incorporation into a limited company.
The client retains the legal title and mortgage in personal name and relies on the principle that taxation follows beneficial ownership, not legal title.
Speaking at Mortgage Solutions’ Buy to Let Forum, Paragon regional sales manager Tim Sweetman (pictured) highlighted that moving properties into a limited company was not always the right move.
And he told the audience in Manchester that beneficial interest “will get looked at more closely going forward.”
Fall foul of anti-avoidance
Paragon warned that there was a strong debate “about whether this method could be considered contrived and fall foul of HMRC anti-avoidance legislation”.
“Lenders are generally not in favour of this route and are unlikely to give approval. This may not be permitted in mortgage documentation,” it noted.
And it added that there may be “complications if refinancing a property that has been subject to these arrangements”.
What options for clients?
A survey of 65 buy-to-let lenders by broker firm Vincent Burch for Paragon earlier this year found that only 15 per cent would complete a beneficial interest mortgage.
Sweetman continued: “We’re not saying there’s anything wrong with it in principle, but what we are saying is make sure you take that relevant advice before going down those steps.”
“If you do take those steps, and if there’s only 15 per cent of lenders who will actually carry out beneficial interest lending, what options are there for the client and what are the actual costs that could be incurred by the client moving down the line?” he added.
When it goes wrong
One broker attending the event said to Sweetman that he was getting lots of enquiries on beneficial interest and always directed clients to the lender.
“We’re very aware of what the lenders want and don’t like,” he said.
“Paragon and lots of other lenders say they won’t do it.
“The last thing we want to do is one, give tax advice, and two, when it all goes wrong in a few years’ time, for them to come after us as well,” he added.
The Buy to Let Market Forum continues this week with events in Cardiff on Wednesday and Reading on Thursday, with registration still open.
The lender also revealed it has made a host of buy to let (BTL) criteria changes.
Kensington was confirmed as part of Twenty7Tec’s announcement in February with an estimated go live timeline of the second or third quarter of this year.
Speaking at Mortgage Solutions’ Buy to Let Market Forum in Manchester yesterday, new business director Craig McKinlay (pictured) confirmed it was almost ready to go live with the technology.
“We’ve got Mortgage Apply with Twenty7Tec going live in a couple of weeks, so you’ll be able to press a button in your fact find and it’ll put it all into the application form, so you won’t have to re-key everything,” he said.
“That will digitise everything at the front end, we then manually underwrite and then digitise at the back-end, but the key thing is to keep the underwriter involved and use their expertise.”
He added: “It’s trying to get the best of both worlds so we’re investing in technology so that everything up to the manual underwriters is as automated as possible.”
Criteria changes
McKinlay also confirmed that Kensington has made a series of criteria changes to adapt to the growing complexity of the market.
The lender will now accept more types of properties such as cob and colt, timber frame and steel framed.
It has increased maximum loan to value (LTVs) to 85 per cent on standard buy to let and 80 per cent on houses in multiple occupation (HMOs).
And the maximum age has been raised to 110.
“There’s no such thing as a simple BTL customer any more,” he continued.
“For example, people are looking to take their portfolio into retirement.
“So many people have poor pension provision, so they are using BTL to support their pension income, so we’ve changed our maximum age to 110.”
Regarding increasing LTVs, McKinlay added: “You clearly need a really good yield for an 80 per cent or 85 per cent LTV and you can achieve that around Manchester, so we do see quite a bit of business from around here.”
Buy to let is robust
McKinlay concluded by arguing that the death of BTL has been oversold and that the market is very robust.
“There is a really vibrant market, it’s definitely changing and the needs of people are changing, so it’s really important you keep hold of those changing needs,” he said.
“As long as you are in the right parts of the market where customers have got needs and tenants have got needs then I think you can do really well.
“Yes, things are continuing to get more complex, but complexity is a broker’s friend because that’s the value add which they can’t get from a comparison site or aggregator,” he concluded.
The forum continues next week in Cardiff and Reading, with registration still open.
Registration for the four half-day events, brought to you by Mortgage Solutions in Manchester, Birmingham, Cardiff and Reading is open.
BDRC director Mark Long will open the first two sessions at Manchester and Birmingham while Keystone Property Finance CEO David Whittaker will take on the keynote speech in Cardiff and Reading.
Long will be utilising the latest research to examine the changes and trends in the private rental sector and try to anticipate what might be coming down the tracks in the next 12 months.
Whittaker will be giving an overview of how he sees the market developing and what this means for lenders and brokers.
Phil Rickards, head of BM Solutions, will also be discussing the evolution of the buy-to-let market and how it is likely to develop in the short-term.
He will explain how we got to where we are today and what the future holds for the private rental sector and buy-to-let, and where mortgage brokers can provide the best value.
Les Pick, head of sales at Canada Life, will be highlighting why an increasingly older population and an increasingly complex buy to let market mean brokers will need to support older people in this sector.
Other topics on the agenda include:
Making the most of remortgage opportunities, Matt McCullough, national sales manager, Aldermore
Making the complex simple, Craig McKinlay, new business director, Kensington
Portfolio landlords: a new mindset, Tim Sweetman, regional sales manager, Paragon Bank
Dates and venues are:
AJ Bell Stadium, Manchester – 24th April
Aston Villa FC, Birmingham – 25th April
Cardiff City FC, Cardiff – 1st May
Royal Berkshire Conference Centre, Reading – 2nd May
For more information visit the event website.
The buy-to-let market has come under increased pressure in recent years with tax and regulatory changes but there are still opportunities for the right customers.
Rickards (pictured) will explain how we got to where we are today and what the future holds for the private rental sector (PRS) and buy-to-let, and where mortgage brokers can provide the best value.
Registration open
Registration for the free-to-attend Buy to Let Market Forum 2019 roadshow is now open, with four events around the country covering the essential elements of the current market.
BDRC director Mark Long will open the first two sessions at Manchester and Birmingham while Keystone Property Finance CEO David Whittaker will take on the keynote speech in Cardiff and Reading.
Long will be utilising the latest research to examine the changes and trends in the private rental sector and try to anticipate what might be coming down the tracks in the next 12 months.
Whittaker will be giving an overview of how he sees the market developing and what this means for lenders and brokers.
The four half-day conferences, brought to you by Mortgage Solutions, are specifically tailored to keep brokers up to speed with the changing market and help maintain and improve valuable business relationships.
Dates and venues:
AJ Bell Stadium, Manchester – 24 April
Aston Villa FC, Birmingham – 25 April
Cardiff City FC, Cardiff – 1 May
Royal Berkshire Conference Centre, Reading – 2 May
For more information and to register, visit the event website.
Using a limited company vehicle has become increasingly common for landlords with the introduction of portfolio lending rules and, more pressingly, changes to the mortgage interest tax relief.
As a result limited company products have reached record numbers with this growth expected to continue.
However, speaking at the Buy to Let Market Forum in Cardiff, Paragon regional sales manager Andrew Rudkin (pictured) highlighted some of the reasons limited company vehicles may not be right.
He also emphasised that it was very important brokers ensured their clients obtained some sort of tax advice.
The key points Rudkin raised were:
Client’s end game
The first question is, what is their exit strategy, what are they looking to do with this property? Is it income, is it growth, is it a combination of both?
Brokers should be trying to drill down to exactly what their client wants to do with this particular property.
Longevity
Limited companies can last longer than any individual landlord and can be potentially used for reducing Inheritance Tax (IHT) liabilities.
Before the tax changes a lot of the limited company business was for succession planning – whereby owners have their children as shareholders and therefore can pass the assets through and reduce the IHT bill.
Short term
There is very little advantage to putting a property into a limited company if the landlord is going to sell it on it straight away.
Individuals will lose the Capital Gains Tax relief of £11,700 and the tax for selling within a limited company is currently at 19%. So it is again important to consider the individual taxation impacts.
Income
Do they need income or not? Taking monies out of the limited company can be costly.
Plenty of landlords will buy property in a personal name but they have to pay tax on the income generated. If it’s within the limited company they can leave it there, but when they take it out they do have to bear in mind the cost.
Extra costs for setting up
There will be finance costs and accountant costs. Clients will need an accountant, so they are going to have to assess this among their deciding factors too.
