Although not as turbulent as 2016, 2017 was certainly memorable. With the Prudential Regulation Authority’s (PRA) Buy to Let changes, the Bank of England’s decision to raise interest rates and the ripple effect of Brexit continuing to make waves, lots of change has kept us on our toes.
By Steve Griffiths, Sales & Distribution Director at The Northview Group
Although not as turbulent as 2016, 2017 was certainly memorable. With the Prudential Regulation Authority’s (PRA) Buy to Let changes, the Bank of England’s decision to raise interest rates and the ripple effect of Brexit continuing to make waves, lots of change has kept us on our toes. Through this all, Kensington Mortgages and New Street have continued to grow, develop and support borrowers who may have struggled through these changes.
Buy to Let
Buy to Let has always been a huge part of the specialist market, but it has undergone a variety of regulatory changes over the last year or so. With the dust now settled after the PRA introduced changes to Portfolio Buy to Let underwriting standards in September, it is a good time to reflect on how these recent changes have impacted advisers and customers within this initial breaking-in period.
First, lenders who were previously unfamiliar with specialist underwriting standards had to prepare for these new rules being introduced for portfolio landlords. The rules required a more risk-based approach, not only to the subject property, but also to assess the background portfolio for any customers with four or more mortgage rental properties. Arguably, it is these changes that have made the most impact on the market.
The result of this change has been a further widening of the market, with some lenders choosing not to offer a Portfolio Landlord option and others choosing to limit the size of portfolio. The good news is that several lenders view the portfolio landlord market as key to their business for those customers that require no limit. This is especially key to Kensington, where we haven’t introduced any restrictions to the total number of properties held in a portfolio, although there is cap on the exposure held with Kensington and New Street Mortgages.
Whilst the rules will take some time for advisers to adjust to, with more complexity comes the increasing need for consumers to have access to good advice. Lenders are still more than willing to lend and brokers should ensure they keep up-to-date with any further changes to lending criteria.
Bank of England’s interest rate decision
With rates at a record low of 0.25%, there was only ever one way for them to go. 2017 marked a turning point for the low interest rate era. For many borrowers, the Bank of England’s decision in November to increase rates to pre-Brexit levels of 0.5% was the first increase they may have experienced since becoming a homeowner.
Albeit the first rise we have seen in over a decade, the majority of borrowers will keep calm and carry on. It is very unlikely that we will see any rises to the higher rates of the 1990s which we had grown accustomed to. Yet for clients who are worried about their long-term finances, brokers can use this as an opportunity to offer the right advice and promote the benefits of re-mortgaging, which has been on the increase again during 2017.
The Autumn Budget
After the long-awaited Autumn Budget was finally announced, first time buyers can claim a Stamp Duty discount (relief) so they don’t pay any tax up to £300,000 of the property value, this was certainly a positive move from the Government to help free up bottlenecks in the housing market. This land tax has been a major stumbling block for younger buyers amidst rising property prices, costing the equivalent of £12,000 for those looking to buy in London.
While these new measures will make it easier for buyers to move up the housing ladder, it’s essential that as an industry we continue to help borrowers by offering good value for money, particularly amid the recent base rate rise.
The changing shape of the UK workforce
This is something particularly important for borrowers who are self-employed, SME individuals, freelancers, entrepreneurs or run their own businesses. Britain’s employment landscape is changing and over the last five years alone, self-employment has grown to encompass 15% of the workforce, or 4.81million workers.
As more and more people turn to self-employment, this means a more diverse group of customers for the mortgage industry. There may be a more general awareness of their importance now, but with the VAT threshold remaining at £85,000 in the Autumn Budget, these borrowers can still find themselves overlooked by some lenders. This group forms the backbone of our economy and although the government clearly understands this, not all lenders do.
While the Autumn Budget announcement was a step in the right direction, more still needs to be done by lenders to understand the real-life circumstances of borrowers. These borrowers are still more likely to be pushed away by high-street lenders due to their complex income patterns, and because they can struggle to disclose their income when it comes to affordability testing.
However, Kensington has continued to address the changing nature of Britain’s workforce and since January 2015, we have helped over 4,000 self-employed workers secure a mortgage. We understand that many of our borrowers have more complex needs and by reviewing each case on its merits, instead of relying on credit scores, we can offer mortgages to customers who still find it difficult to get a loan.
2017 had been a period of transition and evolution and in 2018 the shape of our market continues to change., We are excited for the year ahead and what developments, product enhancements and possibilities it brings. For us, we pride ourselves in lending for real life and, as we have done for the past 22 years, will continue to help brokers find a way to say ‘yes’ to clients.
 A taxing question: Is Stamp Duty Land Tax Suffocating the Housing Market, p.6, fig.1: http://familybuildingsociety.co.uk/About-us-home/MediaCentre/LSE_and_FBS_Stamp_Duty_research.aspx