The Future of Buy to Let in 2019

David Whittaker

CEO

Keystone Property Finance

The BTL Market in 2019 – 2 perspectives

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“We are witnessing the real time shakedown of the buy-

to-let market.

“Since the start of the last year but more so in the

quarter leading into this January – our phones have

been ringing off the hook with landlords looking for

solutions…for the first time we have seen a substantial

number of landlords looking for a loan to cover their

January tax payments.”

“If there is any sector that is used to adapting to

change, it’s buy to let.

“For the first time in a number of years buy-to-let

landlords can look forward to a period without

intervention and so amongst political uncertainty there

is at least a clear outlook for property investors.”

Jo Breeden

Managing Director at

Crystal Specialist Finance

Barry Searle

Managing Director at

Castle Trust

Impact on landlord of 2018 legislation

HMOs – new HMO mandatory licensing rules

o Implemented on 1st October 2018

o Removal of the 3 storey rule – all houses with 5 or more people from 2 or more households now require a license

o Extension of mandatory license to flats above and below business premises

o Set minimum room sizes

o Single room must be at least 6.52sq mtrs

o Double room must be at least 10.22sq mtrs

o Non-compliant landlords could face criminal prosecution of fines of up to £30,000

Where a license is not obtained landlords cannot evict a tenant & tenants can reclaim the rental income that they

have paid.

o All BTL properties will be required to meet this minimum standard from 1st April 2020

BTL Minimum Energy Efficiency Standards (EPCs)

o Implemented on 1st April 2018

o Minimum required EPC rating of E or above

o New regulations make it illegal to rent a property with EPC ratings of F or G

o Affects all BTL properties purchased or renewal of tenancies from this date

o All BTL properties will be required to meet this minimum standard from 1st April 2020

Impact on landlord of 2019 legislation

Homes fit for habitation

• Started as private Members Bill (Karen Buck & Lord Best)

• Homes (Fitness for Human Habitation) Act 2018

• Enacted on 20th December 2018

• Normally applied 3 months after enactment

Ban on tenant fees

• Tenant Fees Bill 2019

• Back from Lords to Commons

• Due to enact on 1st June 2019

• Will these costs be absorbed or passed onto higher rates?

Client Money Protection – 1st April 2019

Have to be a member of an APPROVED Client Money Protection Scheme

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Impact on landlord of continuing tax changes

• Mortgage Interest Tax Relief Cuts

The formula over 4 years (Chancellor – 8th July 2015)

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Tax Year Restriction on interest to basic rate tax

2017/2018 25%

2018/2019 50%

2019/2020 75%

2020/2021 100%

Which impacts by 31st January the following year.

• SDLT in Scotland – rise from 3% to 4% from 2025

Impact on landlord of SS13/16

• Adds to debate on benefits of Ltd Co ownership

o 44% of all our applications are now in a Ltd Co structure

o Average loan size is no different from personal name applications

• 4 or more mortgaged properties – background portfolio check

o eTech now have

o 1,400 broker firms

o 3,500 registered individual brokers

o An average of 13 properties in each portfolio

o Largest portfolio processed was made up of 169 properties

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Keystone Portfolio Landlord Policy

✔ Conversion tool available to convert clients portfolio spreadsheet into acceptable format.

✔ Entire portfolio to be stressed at 125% @5.5%

✔ All properties to have 100% rental cover

✔ Portfolios geared above 80% will not be accepted

✔ AVMs to be used to verify landlords valuation and rental information

✔ eTech (Buy to Let Hub)

To comply with the PRA guidelines and underwriting requirements where the client owns four or more

mortgaged properties the following information will be required:

eTech Buy to Let Hub Lender Dashboard

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£44.6

£27.2

£8.5

£10.4

£14.2£16.4

£20.7

£27.4

£37.5

£40.6

£26

£20

0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

£Bn

£32

Buy-to-let lending: past & present (2018)

Source: CML/UK Finance | Keystone predictions | Keystone Ltd Co lending predictions

£3.5£6

£8

£32.3

£35.8

£28

Impact on brokers of changing finance arrangements

• Product mix

• Commission rates (with apologies to BM Solutions) and mix

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2016 2018

2yr & 3yr 78% 35%

5yr 22% 65%

2016 2018

Mainstream 0.45% / 75% 0.45% / 55%

Specialist 0.55% / 25% 0.60% / 30%

PTs 0% / 0% 0.25% / 15%

• Try modelling your future revenue over the next 5 years on both structures

• Lenders should be beginning to consider a new way forward to reflect ADVISORY rather than TRANSACTIONAL

relationship.

£44.6

£27.2

£8.5

£10.4

£14.2£16.4

£20.7

£27.4

£37.5

£40.6

£28

£24

0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

£Bn

£35

Buy-to-let lending: past, present & future (2019)

Source: CML/UK Finance | Keystone predictions | Keystone Ltd Co lending predictions

£3.5

£7£9

£32.3

£35.8

£33

Call 0345 148 9086

Any questions?