Why Should Buy to Let Mortgages be Regulated?

publication date: Mar 10, 2010
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Article Series 1-4 - Should Buy to Let Mortgages be Regulated?
Article Three

Why Should Buy to Let Mortgages be Regulated?

If buy to let mortgages are to be regulated, it would impact on lenders, mortgage intermediaries, the legal profession, those advising on personal wealth management and of course letting agents.

So I’ve consulted some of the people in the industry to find out what they think about regulation and in particular, whether they think it should or shouldn’t be regulated.

Andrew Chatterton, Franklyn Financial Management Ltd
Talking to Andy, who deals with a lot of buy to let investors, helping them to ensure they minimise their tax bill and maximise their inheritance tax allowances, he thinks that BTL mortgages should become regulated by the FSA for the following reasons, so that borrowers are:-

1. Provided full transparency of charges and costs, not just from the lender but from the advisor/advisory company such as a mortgage broker.

2. Given a letter which explains the suitability of the recommendation by the advisor which ensures the reasons for the recommendations are documented, so if something goes wrong, then all parties have written information to fall back on.

3. Able to have confidence that all mortgages are regulated and that these regulations are followed by all professionals. There is good reason that Main Residence Mortgages are regulated and many people are unaware that Buy to Let Mortgages are not regulated.

Ideally concludes Andy, “I wish that if regulation is introduced, better, more accurate information would be provided to property investors rather than some of the incorrect and possibly even fraudulent information I have seen on the market”.
Andrew Stanway, Collier UK Financial Services
Andrew runs an IFA company and he feels that if the lenders had imposed tighter lending criteria 3-4 years ago, certainly inexperienced property investors who got caught by the new build apartment market, might have been saved from their losses.

And saving people from these losses could have been worthwhile as according to the Eigroup some of these apartments have been sold for 50% less, via repossessions sold through auctions, than the investor originally paid for them.

Regulation however and a greater understanding of how to spot a good property investment would bring benefits to the market. Good investors who have decent security, income and understand how to make money from property should be more likely to get decent deals from lenders on-going, albeit that Andrew doesn’t think we shouldn’t go back to offering buy to let mortgages at less than an 80% LTV.
Hopefully under regulation, education will be better by both the borrower and lender and this will result in less landlords suffering mortgage arrears and even repossession. This in turn would lead to more confidence in the sector and therefore hopefully open up the market – and in particular, not charging such high arrangement fees. 

Kate’s thoughts!
From my perspective, I’d love to see buy to let mortgages regulated because I’d like:-

1. To see the buy to let mortgage market properly broken down into first time BTL investors, experienced investors who have proved they can make money from property and those that are just using a BTL mortgage to help a relative/friend or to move on if they can’t sell their own home.

2. Buy to let investors to have their finances properly checked, not just let money based on the property deal stacking up or not, as we’ve already seen that this information than can be manipulated on application forms!

3. To see the end to ‘no money down’ deals; people being encouraged to pay for deposits on a credit card; investors being encouraged to mortgage themselves to the hilt.

Finally I’d like to see lenders, mortgage brokers, advisors and even surveyors getting a better understanding of how property investment does work. I’ve seen highly professional investors with a great ability to make money from property being refused cash or having to give a ridiculously high deposit, while other people, who literally have no experience and no ‘back up cash reserves’ lent money when they have no idea what they are doing.

It’s mad, and lending like this shouldn’t in my view be allowed to continue. Unfortunately, I have a horrible feeling that if regulation does come into play, we will still be reliant on the lending/mortgage brokers/advisors to carry out and insist landlords carry out excellent due diligence. My fear is once property prices start to rise, the rule book could well be thrown out once again!

Article Four - What are the issues that we need to address if Buy to Let Mortgages are Regulated?

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