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Commercial and B2L deals are already regulated

Should the buy-to-let and commercial markets be regulated? The answer is that they already are, albeit to a lesser degree than residential mortgages.

In the view of many brokers I talk to, full regulation of buy-to-let is inevitable but commercial mortgages are not likely to be regulated.

This is not a point of view I share. If we cast our minds back eight or nine years ago, buy-to-let mortgages did not exist in the state they are today. These mortgages were correctly identified as a commercial proposition and were only offered by banks and similar institutions.

But today, buy-to-let mortgages are readily available from residential lenders and the fear now is that they may be mis-sold. Landlords who take on a property to let are creating a business and will be subject to tax and government regulation. The purpose is to make a profit, the same as with any other business, The fact that the property is residential is incidental.

An office block being let to a business is still a buy-to-let, but who is calling for the regulation of that type of transaction?

Regulation seeks to identify residential house purchasers who may not be 100% motivated by setting up a business. If a property is being bought to let and the tenant is an immediate family member or if the landlord lives in or will live in 40% or more of the property, the transactions are regulated by the Financial Services Authority.

Interestingly, the same rule of landlord occupation applies to commercial property so the customer is protected if his reason for purchase is diluted.

Fundamentally, buy-to-let is a commercial proposition and should be regarded as such.

So, it all boils down to whether or not commercial mortgages should be regulated.

Intermediaries generally do not get involved in commercial mortgages and I suspect that is one of the reasons regulation is not thought appropriate. The government does not offer protection to businesses on its finance deals in any other area – see the Consumer Credit Act.

The call for buy-to-let to be regulated suggests our industry feels undervalued and expects not to be trusted – we must be regulated in everything we do is the message. Well, regulation is already available via the National Association of Finance Brokers. This is a voluntary code of practice recognised by most comm ercial lenders. MCCB regulation worked successfully but was changed in response to European pressure rather than any problems being identified with it.

Regulation of commercial mortgages is impractical given the wide range of businesses involved. The fact that product pricing is largely based on risk assessment and, in large part, to subjectivity further complicates the issue.

Incidentally, Liberal Democrat shadow chancellor Vince Cable has now ended his campaign to regulate buy-to-let mortgages.

Paul rockett


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