FSE London - James Anderson & Liz Syms

Welcome to the Financial Services Expo. My name's Kate Faulkner and I'm currently with James Anderson. And you're from MT Finance. Does MT stand for something?

Mutual Trust.

Mutual Trust, I like that. Very nice. And you're head of New Business, not old business.

That's right. New business all the way.

Jolly good. And also with Liz Sims, you work with Connect for intermediaries. What does that do? What does that mean?

Basically, we have a network of specialist buy to let brokers and we have a distribution arm of packaging for lenders products in the specialist markets of Vitalette Commercial and Bridging. So it's a service all for brokers, a B2B service.

But you'll be in the background then. If I'm a landlord or an investor going to a broker, you're kind of in the background making sure I can.

Help the broker understand some of the specialist areas to be able to support their landlord clients.

Got it. Okay. And you're the md? Yes. Excellent. So we've been chatting about Brexit a lot over the summer, mentioned a couple of times, and I think it's important to say we haven't actually Brexited, we've just had a vote to Brexit. So in theory nothing really has happened so far.

That's right. Following the vote, I mean, we. We saw monumental shifts in the markets, we saw the drop in the pound and I think that was largely in response to us remembering those of us who've got a memory going back that far to the crash of 08 and people expecting something very similar to happen. But now it seems that we're getting to grips with the timescales that will be involved for this vote to go through into actually taking action to leave Europe by the uk. And we're getting the feeling certainly at mtf that things are settling down a little bit now.

And are you picking up the same. You're not seeing any kind of disastrous lenders like no money around, which is really the crash though, just wasn't the money.

Yeah, you're right. That was the scary thing about it that we thought if we exit then we're suddenly going to be back where we were before. Having kind of got our way through the crash, clawed the way back up there. It's all going great. But fortunately things do seem to have settled down. It seems to be business as usual for lenders, for brokers, client sentiment, we're still busy, so it doesn't seem to have had an effect at this point. There's lots of surveys out there saying this way and that way. And I think it's just a case of us just getting on with it, you know, doing what we do well and hopefully, you know, let things sort of take their course.

So I guess really with Brexit, it's, we're going to. It's going to take a long time to kind of filter through with actually happening. But at the end of the day, you were saying earlier we still need houses, still need roofs over our head.

That's it. We're seeing. We were worrying early on that there might be a big dip in the housing market and certainly there has been on the short term, a dip in transactions. Yes. But without a large scale effect on the general mainstream house prices. We were seeing prior to the vote to Brexit, a softening in the upper end of the London market that has continued. But there's a lot of people saying, and I would tend to agree with them, that's a correction in the market which had to happen anyway, that was predicted last year. Indeed. So it's difficult to see an independent effects of Brexit on that. And then there are also. We pick up people seeing that there's a larger influx of foreign investors coming into that market because of the dip in the pound. So again, it's a bit of an early Christmas gift.

That's for buyers. Yeah, fair enough.

It's interesting. Sorry, Just to pick one. It's interesting. You say you've seen a dip in transactions on the broker side. We actually haven't seen the dip, so I don't know if that's actually more to do with other market factors. For example, lots of new entrants into the marketplace.

One of the things we were chatting, chatting about earlier and something on from the Midlands is that actually we. The south has slowed a little because that's where it's had the most impact. But Midlands upwards, you know, it's 3% stamp duty extra isn't that much. So that hasn't caused much of a problem and we can still get pretty good yield. So it might. So geography can affect what's happening.

I think I understand, obviously the issues in the London market, but I still have a little of handle on client work and one of my largest clients who buys just in the. He's so busy at the moment because he says he's picking up lots of bargains and he's having the time of his life.

Well, that's experience for you, isn't it as well? Yeah.

And he's been in the market a long time, so we've seen lots of ups and downs. I think landlords are very resilient and.

That'S what we see from specialist areas like bridging that we're involved in that actually things like the Brexit vote bring change to a market. Sure. And we are still waiting to see what that change is. But it also brings opportunity. And so for short term lenders like ourselves, and I know Liz, you do a lot of this kind of business. You see, you work with investors who are picking up the kind of opportunities that this change brings along.

Okay, so taking that then, if you're talking to landlords and investors from your perspective and your experience, what would, is there anything they should be worrying about at the moment, kind of putting Brexit to one side? What would you, what do you actually think they should be concerned about just now? Or considering, I guess as a another.

Word, rather than worrying. But certainly there are some fundamental changes for landlords around. You know, stamp duty was the first change and most people are saying, well, we can swallow that into the cost. The changes that are going to happen starting from next year with regards to the mortgage interest relief and the potential for larger tax bills. I don't think most landlords actually recognize the impact that they might have on their portfolio. So they need to be speaking to their tax specialist to get some really good advice about how that's going to impact them so they can actually plan for that.

Well, and I think we're coming up to the tax October deadline at this or the first deadline at the moment. And I think this is. It's a matter of looking at your tax what is it this year and then sitting down with your tax adviser and saying, how are these new rules going to affect. You're right, you might not be a higher rate taxpayer, but actually the way the mortgage interest rules are going to be introduced or the relief changed, my understanding is it might push a lower rate into a higher rate.

Absolutely.

And that's what you won't know and you'll only realise and you'll only know that on an individual level. So is there anything else that you think they should be considering?

Well, going back to that point, it absolutely has to be planned for. We do a surprisingly large amount of business with people who have not planned for their tax bills and that we actually do help release equity to help pay for tax and they've left themselves in a situation where they actually have to refinance all their properties to pay for the tax which had already accrued. And that's only going to be exacerbated with the changes next year.

And has that increased, do you think? Or is that.

I think it's increased marginally, but I think the message is really if it's, if it's a problem for some people at this point, we better make sure that it's not a problem going forward.

Okay, but now we know there's also a bit of a solution potentially. If you've got to pay your tax bill, bridging loan is perhaps the thing to look at.

That's the solution. And then the others. Well, there's a number of other things that landlords can do. So the first one is to look to acquire properties in the limited company structure because that's not affected by these tax changes. So again, talking to their tax adviser to establish if that's a good thing for them going forward is a first point of call.

And I think that depends perhaps partly on the exit strategy because you can't. So my understanding is it's not always easy to put properties that you've got in because you might get extra tax.

It's a sale on purchase. So when you're going to do a new purchase, that's a fairly straightforward shall I do my new purchase in limited company. But because the limited company is a different entity, if you want to transfer your existing portfolio, you've effectively got to sell it from yourself to the limited company. So you could trigger capital gains tax on your own circumstances and then your company is going to have to pay potentially stamp duty as well for buying it from you. So that's quite costly. But there are some clients who are making the decision that because of the size of the portfolio, how their portfolio yields their taxpayer bracket, that it actually is a cost worth paying. So I do have some clients that are looking at doing that.

So, okay, so if you've got an existing portfolio, if it's a pretty big one, it might be a consideration to transfer. But for smaller investors, it's a matter of thinking, should I buy under the current schemes or should I actually set up a limited company with the slight hassle admin factor running one myself? That comes with. And look at the price pros and cons, I guess. But a lot of that is comes to exit strategy. And I don't know if you. How do you feel about landlords and property investors? Are they good at their exit strategy or is that maybe something they need to tighten up?

Most of the landlords I know don't want to exit, they just want to keep. I mean, I've got a client that is 76 and he's still going to auction and buying. So you know, from my personal experience. Experience.

Is he gonna rack up a big bill for his kids though? Isn't that his exit? He's just gonna cause a problem for his kids maybe.

But you know, his, his loan to values are now very, very low because he's had the properties for a long time. So you know, he, he owes a hundred thousand pounds on a 600000 pound property and, and, but you know, he's got a bit of money in the bank so go and buy another one and then he, you know, because he's sitting on it for a long time time and he's not refinancing, he's building up a very good amount of capital for his next of kin I would suggest.

But hopefully people are considering the exit. I've had a couple of cases recently where it's a very similar situation and properties are being moved into a limited company so that their children and grandchildren can take shares in there. So that's a tax management thing which people are looking at now. And I don't know if that's because of the changes which are coming around or something that would be done anyway. It jolted people into action indeed, but that could be the case.

Okay. And anything else you think that landlords need to be thinking about at this moment in time, Good, bad, ugly, whatever it might be, there are different things.

They can do to increase their income. A lot of landlords aren't very good at increasing their rents on a regular basis. So we did find another client. We looked at his portfolio of 25 properties and he was running at around two and a half, £3,000 short a month against the market rents. Well that would help his situation from a tax point of view.

I try to say the guideline should be, is if you can increase with inflation, fine. Albeit we tend to find rents move in line with wages and actually wages are doing better than inflation at the moment. So good time to do a little bit of catch up.

There's a lot of demand for rental property so you know, they, they like to have a tenant in there for a long time that's paying the rent. It doesn't cause them any problems. But still there's a lot of demand, so there is manoeuvrability there. And looking at other types of properties, so HMOs and multi units that generate higher yields, we're seeing a lot of demand for that.

So if somebody doesn't know that, that's like we Think of a traditional student house, but there's much more professional versions now.

Absolutely.

And they can be quite.

Luke's, definitely, because you've got five tenants in there paying maybe £250amonth, £500amonth, instead of, you know, one family paying only a thousand a month. So, you know, it makes financial sense from that. And those two things will help with the next rafter changes, which are less known at the moment, which is the other regulator, the pra, stepping in and setting some guide.

Yeah, the Prudential Regulatory Authority.

Stepping in and trying to keep the market under control. So suggesting that lenders should be applying higher rental stress tests.

So this is where we've moved from sort of 125% up to 30 and 40.

145% of a 5 1/2% notional rate is the sort of amount that they're banding about at the moment. And that can make the difference of a significant amount that an individual can borrow.

Okay, brilliant.

And on another level, there are still the opportunities to grow portfolios. If Brexit has taught us anything. Uncertainty to the market does. Uncertainty within the market does create these opportunities. And we're seeing a lot of clients now, more and more buying at auction and picking up some absolutely fantastic deals. So if you understand the asset and you're fairly sure about that section of the market going forward into the future, despite the uncertainty, there are really good deals to be had.

Okay, well, we'll finish on that note then, because that's a good place. So basically what we're saying here is that the tax is really important. If you're thinking, if you've got a portfolio now, make sure you understand the change in tax implications. The second thing is then, if you're looking at acquiring property, should you buy it under the circumstances you have in your past, so personally, or do you put that into a limited company and buy for the future? Make sure you've got a good exit strategy and make sure you're maximizing your income. I think that's the. That's the really important thing. So hope that was helpful.