A Clearer View

2017 has proved to be another year of reform in the buy-to-let market, after the Bank of England set its sights on the sector and began its roll out of new regulation at the end of last year.

January 1^st saw the introduction of stricter affordability criteria for all buy-to-let mortgages, designed to stress-test a landlord or investor’s ability to repay loans, if interest rates were to hit up to 5.5%. While economists anticipate interest rate rises increasing more moderately, from 0.25% to between 0.5% and 1.25% in the next twelve months, lenders are ostensibly proceeding with caution.

In addition, 1^st October saw the introduction of a new set of requirements from the Prudential Regulation Authority, which is targeting portfolio landlords – and specifically those with four or more mortgaged buy-to-let properties.

Industry expert, Mike Perrin, Director of Sales at mortgage brokers Private Finance, explains: “Under the new rules, mortgage lenders now have to undertake a full assessment of each landlord’s entire property portfolio, rather than just analysing the single property deal relating to the individual mortgage. Lenders are also obliged to assess an applicant’s tax position when assessing their affordability.

“The repercussions of such scrutiny are yet to be revealed, but we anticipate landlords feeling under greater pressure than ever to justify every investment. This is sure to add a further layer of complication to the industry, as well as to landlords – many of whom are already the victims of burgeoning paperwork and ongoing complexities.

“There is also talk and supposition that the new rulings might result in lenders pulling out of the mortgage market, not to mention longer application times due to complicated assessments, as well as an increase in fees due to convoluted forms and processes.”

As ever, we are keen to support our landlords and investors in negotiating the financial and bureaucratic demands of the industry, but when it comes to mortgages, it is critical to work with the best possible advisors.  

Mike Perrin continues: “During times of industry uncertainty and change, it is crucial to work with a broker that is both knowledgeable and experienced. We would recommend looking for a firm that harbours close relationships across the mortgage lending markets, so that they can leverage their insights and ensure that each buy-to-let mortgage application procedure runs smoothly.

“With decades of experience, my team at Private Finance are on hand to answer any questions or even have an initial chat with any landlords affected. Feel free to speak to your local Carter Jonas agent for details, or feel free to approach us directly.”

With decades of experience, my team at Private Finance are on hand to answer any questions or even have an initial chat with any landlords affected. Please feel free to call us on 0207 317 2820 or email us directly, or alternatively speak to your local Carter Jonas agent for details.

As the Government attempts to deliver more new homes in an attempt to address the housing shortage, the Mayor of London, Sadiq Khan, has turned his attentions to high-value homes that are left empty.

After commissioning a report in 2016, which looked at the contribution of overseas investment into the delivery of new homes, as well as public concerns over the proportion of homes being sold to overseas investors and kept empty, Sadiq Khan is now looking for solutions.

In a bid to curtail the number of vacant properties in the capital and to maximise occupancy, he has so far proposed an increase in Council Tax bills for empty properties – even though the number of entirely empty homes in the capital is quite low – albeit there is purportedly a concentration in prime areas.

As it currently stands, Sadiq Khan has set out a proposal to Government to permit London boroughs to apply an empty home Council Tax levy on high-value properties above the current 50% Council Tax allowed.

The proposal requests that boroughs are permitted to charge a significant enough levy to incentivise occupation, or at the very least generate a more substantial receipt that could support investment into new affordable homes, alongside other measures that could tackle the housing crisis.

The mayor cites properties in Westminster’s top Band H, which are valued into the multi-millions, but when empty, generate no more than £688 per year.

To date, the Leader of Westminster Council, Nickie Allen, is in support of the proposal.

While the housing shortage must be addressed, Sadiq Khan must also provide greater clarity over his proposals. Landlords are increasingly feeling the strain of additional Stamp Duty, the cost of maintenance attached to EPC reforms, not to mention the abolition of tax relief, so it is crucial to outline when Council Tax levies will apply.

From our perspective, we would urge the Government to afford landlords certain allowances around empty properties; for example, for those who experience a void period – through no fault of their own – a Council Tax levy can’t be justified. If a property is in good condition, realistically priced, and is actively marketed, how can a landlord can’t be accused of exacerbating the volume of empty homes in London? There is also a question of how the system would be policed – and whether the cost of enforcing the ruling would simply absorb any additional revenues generated.

For now, it would seem that the Mayor of London has further work to do on his proposal – otherwise he could be at real risk of dissolving the capital’s lettings market for good.