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BTL regulation could force lenders to exit market, warns BSA

The Building Societies Association has warned that government plans to regulate buy-to-let mortgages could force more lenders to pull from the market.

In its response to the Treasury’s consultation it argues that the new proposals fail to reflect the investment decisions that buy-to-let borrowers make.

Paul Broadhead, head of mortgage policy at the BSA, says subjecting buy-to-let investors to affordability and suitability assessments in the same way as owner occupiers is not appropriate, and would result in a further constraint in the supply of quality housing to the private rental sector.

He says: “The decision to enter into the buy-to-let market is an investment decision made by the borrower. Including buy-to-let mortgages in the same regime as owner occupied mortgages would not be practical.”

The government also proposes to explore extending FSA regulation to second charge lending and looks at how borrowers can be protected when mortgages are sold on.

The BSA supports this move.

Broadhead, says: “We support the principle of the regulation of second charge mortgages being transferred to the FSA. This will importantly make a single regulator responsible for both first and second charge mortgages.

“That said there will be practical difficulties particularly with regards to the transitional arrangements therefore it is important these are constructed to protect existing borrowers and lenders, as responsibility is transferred from the OFT to the FSA.

“We also agree that firms who buy mortgage books should be regulated. It is unfair that consumers who find their mortgage is sold on by their lender are exempted from the benefits of regulatory protection that other customers receive.”  
 

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  • Jon 15th February 2010 at 12:23 pm

    Many recent investors in Buy to Let have been encouraged by investment clubs to purchase properties at inflated prices, and then been unable to let them – many of them new builds in places like Leeds and London etc. Just recently there were reports of builders – rightly – forcing off plan investors to complete on purchases even though the property values had fallen significantly, with the result that these off plan investors lost thousands of pounds.

    Many of these investment clubs are still in existence and charging investors thousands for their advice and help in securing and managing the investment properties.

    Whilst it is easy to say that it is up to these people to look out for themselves, the presentations are slick and it is understandable why some people believe the literature and hype they are provided with.

    If an IFA sells a £10 / £20 / £50 per month investment plan, that plan is regulated. The investment needed for a Buy to Let is significantly greater than this and therefore advice on investing in this market should be regulated. As to if the BTL mortgage should be regulated, I doubt it will make much difference as most brokers treat this as if it is a regulated sale already.

    Rather than just calling for BTL not to be regulated perhaps IFAs should be calling for the right type of regulation in this sector.

  • Michael White CEO Emailmortgages 15th February 2010 at 11:07 am

    Creating regulation to protect the greedy or indeed stupid is inappropriate. Anyone who considers otherwise is I believe at best far too narrow-minded or more likely just plain foolish.

    I am fed up to the teeth with regulation and laws created for minority issues which have a debilitating effect on the majority all in the name of misguided ‘protection’ theory.

    Notwithstanding my views, the farce of using disproportionately forceful means to achieve a simple objective will sadly continue……..

  • Andrew Botte 13th February 2010 at 9:40 am

    Regulation of BTL & Second charges are well overdue.

    I have seen far to many people trying to live the BTL dream and end up losing everything, and for many years second charge loans have been a major area of abuse for massive rates, single premium ASU and inappropriate selling based on affordability – or lack of.

    What is wrong with having suitable affordability checks in place on BTL? As long as the reasonability check is well thought out I welcome it.

    I’ve been around for a long while and have seen many strokes pulled by brokers and customers alike with BTL so bring on regulation. It will also help get rid of the few remaining unqualified morons.

  • Marek Wilson 13th February 2010 at 8:50 am

    BTL is an alternative option for people who want to safeguard themselves in having a secure inflationary related ‘rental pension’ As opposed to the many pensions that have left people crippled. The pensions collapse and you have no control, your BTL crumbles you put it right safe guarding your future investment.

    The correct checks ensure the BTL mortgage is assesed for affordability and the low LTV they offer protects both parties from over stretching their financial commtiments.

    FSA can do a good job by leaving commercial loans alone.

    Being a landlord of 3 properties has supported 3 different vunerable families in having a roof over their heads.

    Lets all sell up and see what happens to the available housing stock to rent on Housing Benefit in society…….. . . .

  • Charles Bunbury 12th February 2010 at 5:35 pm

    Tax and spend or charge and spend
    I do not have any problem with FSA regulating second mortgages:- Is it not time that lenders who make it condition that borrower must not have other loans when purchasing or remortgage with the aid regulated product go in before the ink is dried and give mutual client the second mortgage pay a price when it all goes wrong? Why should others pick up the cost and lender get away? What is the point of consolidation and affordability when lenders can get away with Chinese wall practice?
    Is not time that the public and government take responsibility for their actions? Regulation seem to be one way traffic, call it what you want affordability test or income multiply what ever system is used to calculate the amount that can be lent it will not stop those who go out and take on addition borrowing before the ink is dried or income has increased. They will more than likely end up with a financial problem, is this problem a Broker, IFA or AR responsible, not in my book, must we sit with them 24/7.
    The government and FSA.GOV.UK gets away with this level of thinking and pass the blame or more regulation. One is in the privileged position of TAX AND SPEND and the other CHARGE AND SPEND.
    Borrowers should accept that they are not in the same position as the government or the FSA and stay away from further borrowing until net disposable income allows. Why it is only the AGENTS are expected to act responsible while the rest of society is free to do as the like and we are crucified?
    The regulation of BTL will have a massive backlash on the mobility of labor, students, the industry and all those small TCF landlords whose freedom to invest in BTL rather than controlled pensions is taken away, lets hope the local authorities and universities meets the housing shortage gap. It was not BTL that put us in this position, its second mortgages, loans and securitisation by lenders which both the government and the FSA gave lenders blank cheque for the benifit of corporation tax and stamp duty in return tax and spend charge and spend and more regulations when it goes wrong.

    Charles Bunbury

  • Joe Soap 12th February 2010 at 4:30 pm

    Come on guys wake up and smell the roses.

    As has been pointed out the BTL market is an investment so it is the investor who needs protection from being sold innapropriate investments if he doesn’t understand them.

    However, it has also been noted that lenders didn’t underwrite them correctly. The only way to have any influence over this is to regulate the lenders – hence the proposal to regulate BTL lending.

    The other consideration is the impact on the average guy in the street from bad lending decisions and infalted BTL markets. When the bubble bursts – as it always will from time to time and more so in an unregulated world – the hit on the residential property market carries a massive knock on impact to Mr and Mrs Average who suddenly owe more than the value of their house, or can’t sell as a result of the downturn in prices etc etc.

    There is, therefore, a very valid reason for regulating BTL due to the impact it hads outside of the investment decision.

    The real question is not so much should it be regulated but what form should the regulation take to maintain an orderly, viable residential market place.

  • steve Sykes 12th February 2010 at 3:04 pm

    Look at arrears on BTL against Residential, I can tell you now that Residential is higher. What does that tell you? But not to worry the FSA will not be around for much longer and the replacement will have its work cut out putting right all the wrongs allowed by the FSA that it won’t have time to start regulating self finance mortgages.(commercial mortgages)

  • Geoff Laird 12th February 2010 at 2:12 pm

    When will the FSA learn that the failings of this niche sector have little or nothing to do with being regulated ; given that a significant majority of BTL mortgages were arranged by IFA’s or AR’s of Networks within which many were administered as if they were regulated,I would suggest that that the onus be placed upon the Underwriting processes and criteria adopted by the majority of lenders,and who in reality had little or no understanding of this niche area of lending;If they insist of doing something positive regulate firms who are or would be involved in the marketing of property as a means of Get Rich Quick through Seminars and Property Investment Clubs , a number of which were closely linked with IFA’s .
    Come on FSA wake up and listen to the professionals particularly those who are members of the NACFB or AMI

  • Ian Mason 12th February 2010 at 2:04 pm

    It is the same old story The FSA interfering in things they dont understand.

    A Buy ToLet Mortgage is ,or should be self financing and the main check is does he rental income stack up. Lenders have always controlled this to some degree by using the interest rate for comparison and apllying a particular multiple from 100% to 125%.
    It is possiblle to take insurance to cover period of rental void and lenders still do credit checks on potential clients.
    SO where’s the problem?
    It is just an obsession with control and will not help the landlords, the lenders or the brokers

  • Michael White CEO Emailmortgages 12th February 2010 at 1:48 pm

    It is a very sad state of affairs that time and again The FSA demonstrates just how detached from reality it appears. I guess this is not surprising because in FSA World they can do no wrong and get rewarded in the process. I will not even dwell on the fact that they ‘allowed’ so many problems to manifest themselves in the first instance!

    The situation just continues to deteriorate as the CML and AMI are just not being listened to and therefore individual firms have no chance whatsoever of being acknowledged. The FSA continually give out expressions of agreement in terms of working in conjunction with the market, but I believe that is not genuinely supported by real conviction, in other words we receive little more then condescending lip service.

  • Michael Fallas 12th February 2010 at 1:35 pm

    These people will not stop until everything is regulated and they have charged us all accordingly.

    How else do regulators keep themselves in their jobs and provide a career path?

    More regulations = more jobs.

    Regulation is now like a cancer that grows on you until it kills it’s host.

    So far they seem to be doing a great job !