One of the most contentious questions in the mortgage market is: ‘Should buy to let be included in the framework for mortgage regulation being set up by the Treasury and the FSA?’
The argument for including buy to let revolves around the idea that buy-to-let investors are like consumers of other financial services products. They need consumer protection to ensure their interests are protected.
With the criteria available from some buy-to-let lenders, it is possible for an individual with no experience to buy an ‘investment’ property and try to let it. It is possible for an investor to buy the wrong property, let it (or not) with no proper assessment of the suitability of the tenants and then not maintain it properly. As a result, they may make less money on the project than imagined. It is clear an individual who loses money as a result of these woeful decisions should be able to submit a complaint to an ombudsman and obtain restitution from the miscreants they bought the mortgage/property/ letting service from.
I do not think so either. The problem perhaps lies in the phrase ‘residential investment.’ Buy to let requires the investor to be pro-active: to be aware that choice of property and tenant is crucial to the outcome, coupled with how they manage the tenant and the property.
If you buy a property to let, you are engaging in a business. The outcome will be dictated by many variables, the most important of which will be about how you run that business.
If buy to let is to be regulated it should be as a commercial lending product, for this is what it is. It should never be sold to consumers as an investment that can be considered in the same breath as, for example, an Isa.
Lenders and advisers have a responsibility to ensure the point is made to clients. A mortgage appraisal process should not simply check the estimated rent is enough to cover the mortgage: it should include a proper commercial assessment of the applicant’s suitability as a business customer, it should look at experience and ability, and where the application is thin evidence should be supplemented by professional management from a qualified agent.
Loans to corporate bodies on residential property could not be considered as consumer and a worthy subject of FSA-style regulation ‘ few would consider that loans to experienced landlords with 20 or 30 properties would qualify as consumer either.
How can it make sense to draw an imaginary line at some point with buy-to-let business and make loans to less experienced landlords subject to consumer regulation?
John Heron is manag- ing director of Paragon Mortgages
