A game of two halves

And yet, 2018 could be shaping up to be an interesting year for mortgage lenders, and a good year for brokers. For a start, while activity cooled in the run up to Christmas, that’s not unusual, and support may be there for an early thaw. Overall, in fact, 2017 was a strong one for first-time buyers, with numbers at their highest since 2006, according to UK Finance, up over 7% on the previous year. The Stamp Duty exemption on the first £300,000 introduced in last Autumn’s Budget for first-time buyers should continue to help here, with recent figures from the Spring Statement showing it has helped an estimated 60,000 first-time buyers already. So what does the rest of the year have in store for us?

Increasing complexity

The impact of previous tax changes and, particularly, the Prudential Regulation Authority changes that came into effect in September, have still to fully play out in the buy-to-let market. Stricter affordability tests for portfolio landlords and interest rate rises will make it much harder for some to get funding. At the same time, April will see the next phase of reductions in tax relief for buy to let, further hitting landlords' profits.

That’s likely to push landlords one of two ways: Some, no doubt, will incorporate and buy through limited companies to avoid both the impact of the tax relief changes and the tighter lending rules, since commercial lending is outside the scope of the current PRA changes. These landlords may at the same time look to increase their portfolio size to cover the costs of incorporation.

Others, though, could leave the market in 2018; research from the National Landlords Association shows 20% of its members plan to reduce the number of properties in their portfolio. Bear in mind that a lot of two year-fixed term mortgages secured before the Stamp Duty changes in 2016 will only be coming to an end this March, and many are going to find remortgaging a very different experience. For many, this is finally crunch time.

If landlords do sell up, that will ease competition and reduce pressure on prices for the typical type of properties first-time buyers look for. Either way, though, it’s unlikely to be a quiet time for lenders and brokers – whether they are catering to a busy first-time buyers market, or the increasingly complex requirements of Buy-to-Let owners. The remortgage market may well see a boost, too, since big lenders still have large back books of borrowers who are on reversionary rates, encouraged by the historic low interest rates. As rates rise – perhaps even twice this year – that inertia is likely to be tested.

Expecting polarisation

The interplay between the buy to let market and first-time buyers points to another trend that’s likely to become increasingly pronounced this year, however: a divergence in the market between the high street, mainstream lenders and online supermarkets on the one hand, and specialist brokers and lenders on the other.

The former will, as ever, take on the bulk of the straightforward cases, both from first-time buyers and simple remortgages where stricter affordability requirements don’t pose problems, such as simple, high quality borrowers with lenders competing on price. Specialist lenders and brokers, however, are likely to become even more important to borrowers with more complex incomes or circumstances, such as the self-employed, contractors and freelancers.

Those who have just dabbled in the buy-to-let market in the past, for example, are likely to find themselves poorly placed for a complex market where landlords are looking at the full range of options, from traditional buy-to-let mortgage products to incorporation and commercial loans.

And it’s not just buy-to-let, either; an increasing number of borrowers, from those with complex incomes to the growing army of the self-employed will continue with their struggle to meet the rigid lending criteria set out by high street banks. These borrowers will increasingly look for lenders who recognise real life circumstance and who are able to examine each applicant’s particular circumstances on a case by case basis. These borrowers need quality advice to help guide them to the right lenders and the right products and there are exciting times ahead for the specialist market to grow even further.