In the Mortgage Market Review, the FSA asked the Treasury to make the final decision over whether regulation should be extended to cover the buy-to-let market.

However, the Treasury paper, Mortgage regulation: a consultation, which was published in December, said regulation would fail to tackle the investment decisions which are made by borrowers in the buy-to-let market.

In the CML’s feedback statement to the paper, director general Micheal Coogan agreed with the Treasury that investors would not be protected by buy-to-let regulation.

He explained: “For amateur property investors, poor investment advice is the issue, not the mortgage. Inappropriate regulation could also further damage buy-to-let lending, which has shrunk substantially in the last two years, at a time when the Government is separately promoting investment opportunities in the private rental sector.”

The BSA added that subjecting buy-to-let investors to affordability and suitability assessments in the same way as owner occupiers would be inappropriate.

Paul Broadhead, head of mortgage policy at the BSA, said: “Investors view their purchase as an investment, and conventional aspects of the risk assessment process such as affordability, income and suitability requirements would not be the sole consideration when assessing such mortgages.”

Broadhead also pointed out that the buy-to-let market is not riskier than the mainstream market, as the arrears performance broadly mirrors that of conventional mortgages.

John Heron, managing director of Paragon Mortgages, said: “The main concerns which the regulator seems to have in the buy-to-let arena surrounds the perceived amount of ‘naïve’ or ‘amateur’ investors who are at risk of making bad decisions. However, regulation of the actual mortgage would certainly not tackle bad investments.”