According to Hampshire legal firm Moore Blatch, almost nine out of 10 mortgage lenders would like to see the buy-to-let market regulated. The firm says that through research it carried out it found that 88% of lenders supported such a move. However, it is difficult to assess the true worth of this data without knowing exactly which lenders were asked, how many took part in the survey and how the questions were phrased.
Certainly, as Benjamin Disraeli was fond of pointing out, we have to be wary of statistics. And while it might well be the case that the majority of lenders would like to see buy-to-let regulated, this is not my gut feeling on the issue.
It seems to me that there are a number of issues to look at regarding the potential regulation of the buy-to-let market. In short, these are the benefits it would bring, the actual need for regulation, and the impact it would have on the market as it exists.
On the benefits of regulating the buy-to-let market, there is no doubt that many feel regulation would create a level of consistency. Many lenders and intermediaries dealing in the market also operate in a number of other sectors and are already regulated. As such, they are expected to have the same systems and safeguards in place for their non-regulated business as they do for that which falls under the eye of the Financial Services Authority .
There are some who say that because the regulator expects that regulated firms treat all their business in an appropriate and ‘compliant’ manner, the majority of buy-to-let practitioners are already, in essence, acting as if regulated. However, there are others who feel that working simultaneously in markets which are governed by different rules and reg- ulations, creates grey areas and potential problems for borrower, lender and intermediary alike.
My own thoughts on this are that working in the buy-to-let market does not create problems for those who are regulated and certainly since the FSA took control of the residential mortgage market in 2004, we have not had any significant issues to deal with in the non-regulated buy-to-let sector. It is difficult to see, therefore, what benefits regulation would bring.
Even though a good number of those dealing in the market are already regulated, bringing the sector under the FSA’s remit would undoubtedly create significant upheaval. The impact of such a move would be felt most by those buy-to-let specialists that are currently not regulated and it is likely their business would suffer in the short term.
The whole raison d’être of regulation is to afford protection to consumers. However, buy-to-let properties can often be more of a commercial investment rather than a residential house purchase. There is a clear difference. Furthermore, I do appreciate that not all buy-to-let investors are professional investors, some are amateur landlords who may well need a higher level of protection. Some will argue that whether individuals are making an invest-ment or buying a property to live in, they should be afforded the same protection when it comes to the products they are offered, the way they are sold and the come-back they have should a problem arise. There is no doubt that there is some merit in this argument but we also have to balance the need for protection for investors with the risks that they face, the responsibilities they should bear themselves and the impact that regulation would have on the market in its present form.
At the moment it seems to me that investors are not at risk from poor practice in this market and that to introduce regulation would upset its current balance. In simple terms it seems to me there is just no need for buy-to-let regulation.
The decision to regulate ultimately lies with The Treasury and so far it has given no indication that it believes its original decision to leave buy-to-let out of the equation was the wrong one. Certainly the FSA is unlikely to want its remit to grow and it already has a mighty workload to deal with.
Not only would buy-to-let regulation stretch the FSA’s resources further, but it would also introduce another layer of cost into the market. This is not something borrowers want and it is certainly not something that professional practitioners want.
At the moment the buy-to-let market is performing well although like other sectors it is likely to face challenges in the coming months. However, these challenges should not be used as an excuse to call for regulation of a sector that does not need it.
Those calling for buy-to-let regulation have made little mention of why they think it should be put in place, other than to provide some consistency with what is happening in the residential market. There have been no major borrower grievances raised with regard to the regulatory status of buy-to-let and so it is difficult to understand the motivation that lies behind such calls.
If there are problems then clearly they need to be addressed. But at the moment, buy-to-let regulation does not seem to offer any significant improvements for borrower, broker or lender.
As a commercial transaction the buy-to-let market has already established its credentials to be omitted from mortgage regulation and it does not seem there is significant justification for the Treasury to now change its mind on this matter.
Rather than regulating buy-to-let for the sake of doing so, we should be investing our time and effort in addressing more pressing matters such as slowing volumes and diminishing product availability.