At the moment report after report seems to extol the virtues of buy to let. Lenders are reporting record business levels estimating one in 10 intermediary-sold mortgages is a buy-to-let product.
So, with the buy-to-let market picking up speed, it comes as no surprise that the industry is asking: why will this sector of the market remain unregulated?
In his monthly comment, John Heron argues that it would be impractical to regulate buy to let on the basis that the objective of the Financial Services Authority’s (FSA) proposals is consumer protection and that buy-to-let mortgages are commercial transactions.
But while it is fair to say landlords with a 20-30 strong portfolio are not consumers deserving of FSA protection, one can hardly say the same for first-time landlords.
To regulate buy to let, the FSA would need to state when the landlord stops being a consumer and becomes a business.
Clearly such a distinction would be difficult to make. Investors should be encouraged to regard buy to let as a business ‘ with investment decisions led by the head, not the heart. But we must not neglect the fact that the landlord with one property is more vulnerable than the professional with a large portfolio.
Anecdotal evidence still suggests that for many small-time landlords the purchase is an emotional one with people buying properties they would live in themselves, rather than those that meet the needs of the local rental population. This is ironic, given that most investors would be more scrupulous when selecting smaller investments such as shares or an ISA.
Investors need to understand the responsibilities that come with being a landlord, the impact of rental voids and appreciate that property is a long-term investment.
So, if the FSA cannot protect these individuals, who can? The Association of Rental Letting Agents has just announced the launch of its buy-to-let charter ‘ this guide should be made available to all potential investors.
Lenders owe it to their borrowers to ensure they understand what they are doing and are suitably equipped to become a landlord, but as more lenders enter this increasingly competitive market, one has to question how much this is happening.
So, once again the buck stops with brokers. Buy-to-let advice is about more than just a mortgage.