The private rental sector has finally been recognised as a serious contributor to the housing market by the government. And more importantly, the value this sector adds to the economy has also been noted.
In a recently published report the Treasury states that it has decided to consider making some changes to the form of buy-to-let regulation it originally envisaged.
Under the original proposals the whole buy-to-let market was to be regulated by the Financial Services Authority in much the same way as the rest of the mortgage market is. But the Treasury is now believed to be reconsidering how regulation of the sector might work, including which parts need to be regulated and which don’t.
Of course, the arguments for and against regulating buy-to-let have been polarised ever since Mortgage Day. But in recent times, with the increase in defaults by many speculative and so-called accidental landlords I suspect the pendulum has swung in favour of greater regulation.
On the whole, professional landlords seem to run a pretty tight ship – that’s the perception in the wider marketplace. This perception is carefully nurtured by organisations such as the Association of Residential Letting Agents whose code of conduct seems robustly adhered to by most of those operating in this market.
Regulation is intended to protect and inform consumers so that risks to tenants are minimised and widely publicised. But most of the problems that have come to light in recent years have centred on the investment vehicles involved – the properties – rather than the way tenants have been treated by landlords.
Regulation should take the form of ensuring that buy-to-let properties are managed professionally
In some well-documented cases tenants have been evicted with little or no notice following the repossession of a property by a lender, and in some cases they have been unable to get their deposits back from unscrupulous landlords.
But you could argue that these are occupational hazards. After all, nothing in life is risk-free. Most tenants can limit their exposure to problems by basic preparations such as avoiding landlords who deal with properties themselves rather than engage the services of a lettings company.
Most lettings firms indemnify tenants’ deposits.
So if regulation is needed at all in the sector it should be restricted to amateur landlords who have one or two properties, and should take the form of ensuring these properties are professionally managed.
For example, it should ensure that lenders inform tenants of any impending action against their landlord so they have a chance to find alternative accommodation.
In other words, the buy-to-let sector should be treated in the same way as the commercial sector but with one or two minor safeguards to ensure greater transparency.
The one-size-fits-all approach of applying residential regulation is inappropriate and would simply serve to strangle an increasingly important part of the property market in red tape.
Credit guidance falls short
The Office of Fair Trading has published guidance on what it considers to be irresponsible lending as part of its fitness test for lenders to hold a Consumer Credit Licence. The guidance provides clarity for creditors at each stage of the lending process.
Many of us have long insisted that the OFT should take a more active role when it comes to handing out licences and while this guidance is a step in the right direction, it falls short of what is required. Long seen as a way for the government to make money by insisting that anyone working in the field of consumer finance must hold a licence, the CCL has always been ineffective when it comes to policing the rogue elements in our industry.
The OFT should do something for the fees it charges, which start at £330 for sole traders. It could at least give the impression of vetting the individuals and firms that are granted licences.
Mixed picture of confidence
A recent report from the Confederation of British Industry shows that activity and confidence in the financial services sector both continued to rise in the past quarter, with indications of further improvements to come.
But the CBI also confirms that concerns about bureaucracy have reached an all-time high. I don’t suppose this situation was helped much by the fire and brimstone rhetoric coming out of the Financial Services Authority in recent times.
In the next quarter 48% of firms expect a rise in business compared with 58% in the same period in the boom time of 2006, so things are slowly moving in the right direction.
But more than 85% of the companies polled by the CBI say they fear the UK is losing its competitiveness as a financial centre and foresee economic power shifting to Asia.