View more on these topics

Standard bearers in the BTL market

There is a lingering concern that buy-to-let standards could slip if pressure grows to write higher volumes

John-Heron-700.jpg

It is not 100 per cent certain, but all the signs would suggest that the UK government has won a rare and important victory in Europe.

It looks as though the drafting of the EU Mortgage Directive, otherwise known as EU CARRP, will allow the UK the option to dis-apply the requirement for buy-to-let mortgages to be regulated by statute, presumably therefore under Mortgage Conduct of Business.

There are some provisions that will need to be satisfied. It will need to be a well-established market with a record of high credit standards – which it is.

There also needs to be “satisfactory alternative arrangements in place”, presumably some form of code of practice for lenders and intermediaries such as that mooted by Council of Mortgage Lenders director general Paul Smee at the CML conference.

To be credible and for such an approach to be successful, lenders and intermediaries need to demonstrate that they can be trusted to maintain high standards in the market.

They need to ensure that new and aspiring landlords are properly advised and that full, clear information is provided. Above all, responsible lending decisions must be made. Following this stringent approach should ensure that buy-to-let is not mis-sold.

Although all the indications are that the buy-to-let market overwhelmingly adopts and applies such standards, there remains a lingering concern that standards could slip if lenders and intermediaries come under a great deal of pressure to write increasingly higher (and perhaps unrealistic) volumes of business.

Of course this can be avoided if the right checks and balances are in place but there is at least some evidence that some mortgage advisers will suggest to home-buyers, who might struggle to obtain a residential mortgage, that they could apply for a buy-to-let mortgage as a means of financing a purchase that might otherwise be impossible.

At the same time, while most lenders have tightened their criteria in the wake of the financial crisis, others have been gently relaxing credit standards.

There is, for instance, a worryingly wide range of approaches to the assessment of affordability in buy-to-let.

While the most generous of these can be very attractive to landlords who are short of equity, affordability can become quite badly stretched once the loan steps up to the reversion rate, never mind if you factor in interest rates returning to more normal levels.

It can hardly be responsible to lend on the basis of an affordability test that does not even ensure that a loan is affordable at the lender’s normal reversion rates, even without an increase in base rates.

I have argued passionately for many years that buy-to-let is not a consumer product, that buy-to-let borrowers are financially sophisticated property investors and that they do not need the level of protection afforded to consumers under MCOB.

While I still believe this to be the case, any proliferation of irresponsible lending and poor advice in the sector is going to make this a very difficult line to hold and will have a detrimental impact on the reputation of those operating in the buy-to-let market – both on the advisory side and the lender side.

Recommended

MS-Letters-to-the-Editor-700.jpg

Letters

Star letter Well done to AMI for taking up CCL challenge but why has it come to this? I was interested to read your story last week that broker trade body the Association of Mortgage Intermediaries is lobbying the FCA to amend the new consumer credit license rules for mortgage intermediaries. Well done again to […]

Paragon BTL business surges 90.5%

Paragon Mortgages completed £359.8m of buy-to-let business in the 12 months to the end of September, 90.5 per cent more than the £188.9m completed the year before. Announcing its year-end results last week, the specialist lender’s parent company, Paragon Group of Companies, also said it is making “good progress” in its application to gain a […]

Wales to launch Help to Buy in January

Wales’ version of the Help to Buy equity loan scheme will launch in January. Last week, housing minister Carl Sargeant announced the £170m scheme, called Help to Buy Cymru, will support the purchase of around 5,000 new homes in Wales during the next two and a half years. Sargeant says: “The Help to Buy – […]

House-Building-Construction-700.jpg

Planning permissions up 31% says HBF

Planning permissions for new homes are up 31 per cent year-on-year according to the latest data from the Home Builders Federation. In the third quarter of 2013 there were 44,251 permissions on 826 sites, which is up 19 per cent on the 37,053 granted the previous quarter and is the highest quarterly tally since 2007. […]

Guide

Guide: what you need to consider for your auto-enrolment project

In this guide, Johnson Fleming reveals what items you need to understand to gauge the impact of auto-enrolment on your business. The guide focuses on: the impact that your auto-enrolment scheme will have on you; assessing your workforce; understanding your staging date; reviewing your current provision; and modelling contribution levels and costs.

Newsletter

News and expert analysis straight to your inbox

Sign up