Regulate B2L and property clubs, says BPF
Share
Buy-to-let mortgages and property investment clubs should be regulated by the Financial Services Authority, according to the British Property Federation.
The trade body, which represents property investors, has published a report called ‘Responsible Regulation’ which calls for buy-to-let mortgages to be included within the FSA’s remit of mortgage regulation to ensure more prudent lending.
The BPF argues that the idea that buy-to-let mortgages are similar to a business loan and buy-to-let borrowers are more financially adept is unfounded.
Buy-to-let lending rules were also relaxed during the credit boom as rental calculations went from up to 150% down to below 125% and in some cases rental payments were the same as mortgage repayments, the trade body says.
Ian Fletcher, director of policy at the BPF, says: “Many lenders simply threw money at buy-to-let borrowers during the boom without sufficient checks on who they were lending to or what they were lending for.
“Consumers have suffered as their buy-to-let dream turned sour and many buy-to-let lenders were at the root of our economic problems as organisations such as Bradford and Bingley found themselves over exposed to bad loans.”
The BPF says it considered whether the FSA should regulate buy-to-let mortgages under the investment sector rather than as a lending product, but in the end determined that this shouldn’t be the case.
It is also calling for property investment clubs to be regulated for providing advice in the same way as IFAs and brokers are.
Case studies analysed by the BPF show many clubs played a significant role in attracting investors during the boom which led to poor investment decisions.
Readers' comments (3)
Anonymous | 5 Oct 2009 11:04 am
Relulater
I do am all for proper regulation and consumer protection. However, I do think the new regulation has to be put in place by a reputable and highly regarded regulator. I believe that this is not the FSA. The FSA needs to get their house in order and gain respect of the market they are already regulating or they need to be replaced. Once this is done there can be consultation to decide if other financial areas should be regulated.
Unsuitable or offensive? Report this comment
Anonymous | 5 Oct 2009 11:48 am
Why?
I am dubious about this. Getting a mortgage that is secured on your own home is a consumer transaction. Raising capital to buy a property in order to rent it out for more than it costs is a commercial one - you are running a business and it is the business assets (i.e. the rented property) that is offered as security.
So if we argue that buy-to-let should be regulated then we are going down a road that seems to lead to all commercial borrowing being regulated.
The problem with the buy-to-let market was not caused by a lack of regulation but commercial incompetence. On that basis, the banks board members would seem able to argue that somebody else (presumably Gordon Brown) should have told them not to lend.
Unsuitable or offensive? Report this comment
Anonymous | 7 Oct 2009 5:50 pm
Why?
I am a commercial and buy to let broker and can see where the BPF is coming from, in a much as some borrowers need to be protected from the get rich quick crowd. I have been to some seminars that were setup by property clubs and witnessed the hard sell that they do. The problem here is that some, lets say non commercial minded people, have been taken in by the dream. I agree thats wrong and should not happen. This is not a mortgage problem its a OTF problem. Yes if they buy a pup of a property that will not rent then its going to be a struggle. But lenders, valuers check the properties before hand and they should be giving an indication of rental potential. Also the fact that lenders were offering 90% LTV with 100% rental stress was, with hindsight probably not right but the FSA signed these products off to be sold. I can't see where this mortgage market need regulated.
Unsuitable or offensive? Report this comment