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Gauging the Sipp impact

John Charcol managing director Ray Boulger says the buy-to-let market will, undoubtedly be boosted after A-Day but the real question is by how much.

He believes the boost will be relatively small and that overseas property, in particular, has had a lot of hype which will not follow through.

Although property abroad can often be more affordable for customers, Boulger says there are many complications to transfer it into a Sipp.

But Boulger is surprised that only 65 per cent of brokers thought the new rules would lead to an upturn in the BTL sector because “clearly if you have got another potential source of purchase it is going to give it a boost”.

The survey also found that 35 per cent of brokers believe the potential impact may have been overexaggerated.

Mortgage Force managing director Rob Clifford says this last figure shows there are still many brokers who doubt that the A-Day changes will have a positive impact on the BTL market.

Clifford thinks the new regulations will have a posi- tive effect but they are more likely to benefit people who already own BTL properties and want to transfer them into a Sipp, rather than create a new market of amateur landlords who enter buy to let due to the tax treatment.

He says: “I have some cautionary enthusiasm for what it might do but you have to see it in the context of a market which has already seen staggering growth in the last three to five years so I do not think it is going to double or treble by any means. I think we will see some increases in market transactions in certain quarters.”

Clifford says the only downside he can foresee is the effect this will have on first-time buyer affordability. “Most clients we come across want to spread their risk and instead of buying one BTL property at 250,000, they try to buy three smaller properties for that total value, so they spread their rental risk. Of course, these 80-150k properties are classic FTB territory, so if landlords are buying them up, it is doing nothing to help FTB affordability,” he says.

Paragon Mortgages managing director John Heron says most people within the industry think the changes will have an influence on the BTL industry but it is not going to “change the universe”.

In Heron’s opinion, some coverage in the national press has been hyped “almost to the point of being misleading” but it does not concern him too much.

He says: “I do not hear many people saying they think Sipps are going to deliver a huge boost to the BTL market or the housing market generally. I think there are other much more positive factors that are supporting BTL at present and they are more tangible, real and current.”

Key drivers which he thinks are supporting BTL are the “significant” expansion in private tenant demand over the past year combined with modest house price growth.

He says: “One can debate about the degree to which Sipps will be a further push on the market. It certainly is not going to be a negative – it is going to go from mildly positive to a little more mildly positive but we have a very strong BTL market in any event.”

Mortgage Portfolio Services mortgage planner Simon Chalk says the excitement surrounding Sipps is creating “an artificial feel to the market”. He believes that many people will be disappointed when the final rules come out and they realise they cannot take advantage of them.

He thinks as a result there will probably be too much property around and not enough purchases, resulting in a dip in house prices.

London & Country mortgage specialist James Cotton agrees these tax breaks are not going to be accessible for a lot of people. “It is going to create a lot of interest because it is something new but a lot of those people who look into it will probably realise it is not for them or when hearing about what it entails will probably decide against it.”

Mortgages for Business managing director David Whittaker says, if nothing else, the new Sipp regulations will be an opportunity for IFAs to talk to their customers and offers “another avenue of approach”.

It is hard to gauge the impact of the new regulations at this stage, he says, because it is largely guesswork. “Anyone who says they know absolutely categorically what is going to happen is playing a loose and fast game,” he says.

But Whittaker is more confident about the products on offer and says they are unli- kely to be “particularly keenly priced”. He says this is because there is an extra person in the equation – the Sipp fund manager – and lenders will not be keen to deal with this extra demand on their time and resources.

Mortgages for Business does not currently have any plans to tie up with a Sipp fund manager and Whittaker thinks that whether it does or not will be driven by lenders’ requirements after A-Day. He adds: “It is up to the financial ser- vices community to use the next six-and-a-half months to sort their acts out.”

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