Access to finance will not be the main challenge facing landlords in a post-stamp duty and mortgage credit directive world, according to buy-to-let lender Foundation Home Loans.
Simon Bayley, commercial director at Foundation Home Loans, said choosing where to buy was likely to be the toughest problem landlords would have to deal with this year.
“Much doom and gloom has been expressed that the changes to tax relief and stamp duty will make it more difficult for landlords, particularly new and amateur landlords. But at a time when there is such choice of funding and the alacrity with which the industry has come up with potential new funding choices like Limited Company BTL products, funding is not really going to be the issue,” he said.
Bayley said landlords looking at acquisition will be working harder to find areas where property prices are not overinflated and can generate rental yields.
“While the moves on restricting tax relief and increasing stamp duty will create some barriers to entry, they are not insurmountable and the main consideration for successful investment in 2016 will be the mantra of ‘location, location, location’.”
Mortgage Credit Directive
The Mortgage Credit Directive is European legislation designed to raise mortgage lending standards across the EU and protect consumers.
The legislation brings in tougher affordability checks for consumers across member states, many of which were introduced to the UK in the Mortgage Market Review.
Under the new rules, the buy-to-let sector will become supervised for the first time and all borrowers will have to complete strict affordability tests if they change lenders.
Buy-to-let mortgages are currently not regulated like mainstream mortgages as landlords are seen as business owners.
The regulation categorises borrowers as either consumers or professionals.
According to the Mortgage Credit Directive, a consumer buy-to-let landlord is one that never intentionally bought the property to rent it out.
Also known as accidental landlords, this group includes people that have inherited property or previously lived in one that they now rent out.
A consumer landlord will have to go through similar affordability checks to someone with a residential mortgage and meet similar strict criteria.
It is set to come into force on 21 March and anyone taking out a buy-to-let mortgage that is not being used for business will have to take out a regulated product.
Stamp duty
In his 2015 Autumn Statement, George Osborne dropped a bombshell with the announcement that a 3% stamp duty land tax surcharge for those buying second homes or buy-to-let properties was set to be introduced on 1 April.
The charge is part of the government’s efforts to dampen the buy-to-let market in order to make it easier for first-time buyers to get a foot on the housing ladder.
The amount of tax relief landlords can claim on properties will also fall from April 2017.
Critics have pointed out that landlords could also end up charging higher rents in response, actually making it harder for tenants who want to buy to save for a deposit.
Experts believe that the increase in stamp duty will lead to an increase in demand as landlords look to purchase property before the changes come into effect.
“First time landlords might be thinking a little more deeply about involving themselves because of the changes, but funding will not be the issue. In reality, it will be about making sure the sums add up and that has everything to do with the geographical areas they choose to buy. The buy-to-let market will continue to be a very competitive one in 2016, which can only benefit landlords and their advisers and we will continue to champion first time landlords as we have since we launched,” said Bayley.
