What became clear during the last UK Treasury consultation was that there were two objectives that had almost conflicting aims. This is against a back-drop which says that from a public policy perspective we need an awful lot more houses in the private rented sector.
As we continue to produce more graduates with significant debt around their necks and we have lending requirements that force potential buyers to have hefty deposits to fund house purchase, there is an escalating need for private rented properties.
This is before we account for the changing demographics, which mean that we need about 240,000 new houses a year and are only building less than half that. Social housing is in decline therefore there is a growing and increasing need to fill the gap through buy to let.
However, there have been some problems in this market, where, as some landlords encountered their own financial difficulties, their tenants found themselves evicted whilst still meeting their contractual requirements.
This must be unsatisfactory. So, in setting out to regulate this market there are two key issues to address.
Firstly, ensuring that tenants are protected if they are meeting their obligations and, secondly, ensuring that landlords borrow responsibly and understand their obligations, so providing a robust and sustainable market.
Against this back-drop, the UK Treasury was taking time to ensure that it got the right solutions for the particular issues in the appropriate parts of the market.
However, we now have the European Union, through the Commission, proposing that buy to let be brought under the provisions of the new directive on credit agreements related to residential property.
This would exclude where the property and the loans are being bought through a legal entity, therefore where a landlord sets up a limited company for his enterprise, the transactions might be exempt, unless the UK choose to include them.
This directive has a proposed timetable that could mean that these provisions become law by the end of this year and will need to be enacted in member states by the end of 2013.
It is the EU intention to regulate this area, and it will therefore need to be addressed by the UK.
However, it is only regulation to control how the landlord borrows. It is not about increased tenant protection or improved rules on securing more sustainable tenancies for people who may wish to rent, put down roots and invest in the property having security of tenure.
It is about making it harder for the speculative landlord to get involved, by saying those who set this up as a business can be exempt, but those who trade as people may need to be protected from themselves.
The risk here is that in needing a more vibrant and involved buy-to-let community, there is always the risk that it could be stifled by burdensome regulation.
The truth, however, is that most lenders in this market already treat such loans as regulated or apply the disciplines required by the new rules. The challenge will be to ensure that what will be an essential market to the UK will be able to prosper.
Robert Sinclair is director of AMI
