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Consumer Duty and the question of BTL shows up complex lending education gap – Syms

by: Liz Syms, CEO of Connect for Intermediaries
  • 21/04/2023
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Consumer Duty and the question of BTL shows up complex lending education gap – Syms
Is the sale or advice of a buy-to-let mortgage regulated or not?

This question was posed when I was recently involved in writing the buy-to-let topic for the new Certificate Practitioner in Specialist Property Finance (CPSP) qualification with the Financial Intermediary and Broker Association (FIBA) and the London Institute of Banking and Finance (LIBF). 

The answer is, well, it depends. 

There are three types of buy-to-let loan: 

  • Consumer buy-to-let. These are your buy-to-let loans to accidental landlords, e.g. those who used to live in the property or inherited the property and ended up letting the property out. There is a specific type of Financial Conduct Authority (FCA) regulation called ‘Consumer buy-to-let’, which is selected separately from other permissions with the FCA. You cannot advise these clients if you haven’t selected this permission.  
  • Family buy-to-let. This is where an immediate family member will occupy 40 per cent or more of the buy-to-let property. So Mum and Dad purchase a property but let the son or daughter rent it from them. This is a fully regulated buy-to-let under the FCA Mortgage Conduct of Business (MCOB) rules, which means you need to hold a mortgage qualification and be regulated for residential mortgages. 
  • Business buy-to-let. This makes up most of the buy-to-let transactions. The letting is treated as a business and therefore sits outside the FCA regulation. However, there is a small window in time where a business buy-to-let sale was partially regulated. This is the date between when the FCA took over regulating Consumer Credit in 2014 and when the Mortgage Credit Directive came into force in 2016. Business buy-to-let was officially then removed from regulation.  

Therefore, complaints about any business buy-to-let sales between these dates could still be reviewed by the Financial Ombudsman. 


Why it matters 

So why is this important?  

Consumer Duty is just a few months away. The FCA has already indicated that if you advise a customer for a regulated and non-regulated product simultaneously, it would not be in the spirit of Consumer Duty only to apply the rules to the regulated sale.  

If you are a fully regulated mortgage adviser, mainly advising on residential mortgages, it may not be an issue for you if you adopt the same advisory standards across residential mortgages and buy-to-let mortgages.  

An adviser does not need to be regulated by the FCA to advise on business buy-to-let. However, buy-to-let advisers will find that many lenders will not accept their business if the adviser is not part of a regulated company. 

Some buy-to-let lenders insist the adviser also holds the mortgage qualification, such as CeMap. However, this qualification does not really properly prepare the adviser for operating in the complex buy-to-let market. For example, houses in multiple occupation (HMO) legislation, limited company lending, rental affordability and buy-to-let tax are not covered in CeMap. 

This is why the new CPSP qualification is so essential. Even though business buy-to-let is not regulated, through this programme, regulated and non-regulated advisers can benefit from a deeper understanding of the complexities to give the right advice to customers needing buy-to-let mortgages. 

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