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Buy-to-let gaming: Advisers have more to lose than consumers – Copland

by: David Copland
  • 04/03/2015
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Buy-to-let gaming: Advisers have more to lose than consumers – Copland
The recent Treasury response to the European Mortgage Credit Directive (MCD) appears to suggest that mortgages will not be regulated, with a very few exceptions - these appear to be where somebody has become an accidental landlord, through inheritance or renting to buy another property.

This could all change however if a different government is elected in May which has a different opinion on just what should and shouldn’t be regulated.

The positive regarding regulation is that most networks’ sales processes have little differentiation between how they advise someone coming in for a residential mortgage compared to someone after a buy-to-let mortgage. Offering someone full advice is just good practice.

One of the reasons that the regulator may be keen on regulating this market is to try and prevent was is commonly called “gaming”. These are applicants who have a 20-30% deposit but are unable to meet affordability calculations and stringent income checks and therefore apply for a buy-to let mortgage when in fact they have every intention of residing in the property.

Gaming is something that the FCA is taking increasingly seriously, but it now seems to source from borrowers who are struggling to get on the housing ladder rather than brokers. However it is often the broker that will be the fall guy if their client is found to have used a buy-to-let mortgage to fund a property they then live in. This can leave the broker in a difficult position and potentially without a livelihood.

The challenge is that there appears to be almost no consequence for the borrower as things stand. I don’t think I have ever heard of a borrower being evicted or prosecuted for fraud because they are living in their buy-to-let property – especially if the mortgage is being paid on time and in full every month.

Equally, the more publicity there is about gaming, in some ways, the more it raises it in the public’s consciousness and so the more people who may well try to get away with it.

The biggest risk is to the broker who through either naivety or complicity could be taken off a lenders panel. Arguably it is only when there is a consequence such as repossession that it may dissuade a borrower from going down this route.

To go full circle, maybe what we need therefore is for all buy-to-let to be regulated. The question though, will still be, how do you prevent clients playing the system unless regulation dictates that lenders on discovery have to take drastic action along the lines discovered above. The worry now is any retrospective action that may be taken once a new government comes into power.

By David Copland, director of TMA

 

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