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.