Buy-to-let is ahead of the game
Share
It has been suggested by some that the problems of the sector should reignite debate about whether it would be appropriate to bring buy-to-let mortgages within the remit of the Financial Services Authority.
The argument against this approach has always been that these deals are commercial loans and as a result the more experienced borrowers likely to take them out require less protection.
Am I going to sit on the fence on this one? After all, we do not want to end up with the mortgage market equivalent of the notorious Dangerous Dogs Act as a knee-jerk reaction to a problem which might only exist for a limited period of time.
I heard a wonderfully evocative phrase recently and wish I could take the credit for thinking of it. It was suggested that the economic boom of the past decade had led to us all becoming drunk on money and we were now being forced to sober up.
Well, it seems to me that many buy-to-let borrowers became intoxicated with the idea of someone else paying their mortgage while they built an attractive pension fund in the form of a rapidly appreciating asset.
I can't see how regulation can protect against individuals' greed.
Anyway, as the downturn has taken an increasingly tight grip on buy-to-let the Council of Mortgage Lenders has published guidance on dealing with arrears and repossessions in the sector.
This guidance suggests that lenders should "not seek to realise the security (including the appointment of a receiver) until all reasonable attempts to resolve the position have failed".
I would argue that buy-to-let lenders have led the way in coming up with innovative methods of keeping properties out of repossession, and the CML's guidance doesn't seem to include anything that buy-to-let lenders are not already doing.
In fact, many are going further than the CML recommends.
In some ways buy-to-let lenders have had to work harder than most in the industry. For example, they have been exposed to a greater extent than mainstream lenders to the collapse of the market for new-build flats.
Simply rushing to repossession and sale without exploring all other available options is not a sustainable commercial approach - lenders have to take a much more flexible and hands-on approach to addressing such issues.
There have been examples of buy-to-let lenders helping borrowers to improve their properties and thereby increase the rental value.
I've also heard of lenders helping borrowers find tenants, as well as provide them with advice on how to market their properties to prospective tenants.
By all means have a look at the CML guidance - if nothing else it represents a handy checklist. But I'd be pretty surprised if buy-to-let lenders find anything in it that they are not already doing. The way buy-to-let lenders are acting at the moment seems to me to be a good example of how the market is ahead of the regulator and trade bodies in developing innovative solutions to the problems that are being thrown up by the current difficult market.
So, having initially suggested I might sit on the fence, perhaps I have just demonstrated that leaving things to the market is the best way to ensure the buy-to-let sector continues to operate in a sensible manner.
The market has shown it can learn lessons and I'm sure this will not only be the case in arrears management but also be transferred to lending policies as the market improves.
If I'm wrong the risk is that the FSA will intervene. And that's as good a reason as any for making sure any market works efficiently.
Philip Tebbatt is principal of niche financial services law firm Slater Rhodes and can be contacted at philip.tebbatt@slater-rhodes.com
Source:
Lending Strategy
