It will come as no surprise that the Treasury has paid little attention to the comments made by the mortgage industry during the consultation on the regulation of mortgage advice.
As a result, the new regulatory regime will fail to meet its primary objective, that is consumer protection.
Its major failing is its dismissal of calls to regulate buy-to-let mortgages. While there is a school of thought that suggests buy-to-let lending is commercial and such investors do not need the same level of protection as home owners. This may have been the case 10 years ago, before the buy-to-let market kicked off, but does not reflect the dynamics of today’s market.
Competition in the mortgage market has made it even easier to become a landlord. Rates are attractive and loan to values are high, meaning many thousands of inexperienced landlords (often with little equity behind them) have turned to buy to let to cash in on house price inflation ‘ a particularly attractive proposition as the FTSE tumbles.
These investors need and deserve protection from the Government. It seems nonsensical that an individual investing small amounts in an ISA benefits from regulatory protection, but an individual investing thousands and signing themselves up for years of debt does not.
Regulation is necessary to ensure that landlords have done their homework on both the property and its location and are able to cope should they struggle to let the property. Likewise regulation is necessary to ensure lenders do not relax their lending criteria in the fight for market share, to prevent individuals overstretching themselves.
Another potentially dangerous omission is home reversion schemes. The Treasury stated that it felt unable to regulate such schemes ‘these are not financial services products, but are sale and purchase arrangements in relation to real property’ it said. This is perhaps a reasonable point, but that does not mean its omission will not cause problems. While home reversion schemes are not mortgages per se, they do fall under the equity release umbrella and as a result consumers will not necessarily make that distinction.
In dismissing a large number of concerns raised by brokers, lenders, packagers, networks and clubs, the Treasury has missed an opportunity to increase consumer protection, undermining the very raison ‘d’etre of mortgage regulation. All we can do now is wait to see how the FSA interprets the Treasury’s findings.