The consensus appears to be that it depends on the size of the pot. What it could mean though, is with savings built up over a lifetime of work, retirees may become landlords for the first time at the age of 55.
This has raised concern among some in the mortgage industry about whether first-time retiree landlords need to be afforded the same protections as consumer buy-to-let mortgage borrowers who have accidentally became landlords.
This week’s panel of experts considers whether mortgages used by retirees who wish to purchase buy-to-let properties should be regulated by the Financial Conduct Authority bringing these customers under the banner of consumer buy to let.
John Eastgate, sales and marketing director OneSavings Bank, says unless the industry wants to walk into the next misselling scandal pensioners should be viewed as consumers when considering buy to let.
Gemma Harle, managing director of Tenet Lime, examines the issue of regulatory creep and looks at advice further up the chain.
Mark Stopard, head of product development at Partnership, looks at the benefits of extending advice and affordability checks to retiree landlords.
John Eastgate, sales and marketing director OneSavings Bank
My starting assumption for this issue is that the answer is a universal “yes”, and then work back from that point, making sensible exclusions.
The alternative would be a protectionist standpoint that failed to put customers at the heart of our business.
The technical definition of consumer is irrelevant. Writing about PPI mis-selling in 2011, Robert Peston said “much of what the banks have now acknowledged to be mis-selling seemed consistent with rules laid down by the regulator…but the FSA argued that following the letter of these rules was a necessary but not sufficient guarantee”.
In a conduct risk environment even more heightened than it was then, we must go beyond the words on the regulatory page.
Pensions are a complex area. And, even though I am “only” a buy-to-let mortgage product manufacturer, on this occasion a long way down the value chain (after investment and mortgage advisers), my product governance process requires me to ensure that my products are appropriately targeted, fit for purpose and give due consideration to conduct risk issues.
I cannot do this unless I think of these prospective new landlords as consumers. Some may not be, but initially I should assume that they are. Our world can ill afford a future mis-selling scandal; poorly advised pensioners losing money on investment property would, quite rightly, reflect badly on both the investment and lending industries. Regulation and the safety net of FOS can mitigate some of the risks and support good consumer outcomes.
Gemma Harle is managing director of Tenet Lime
It’s important we distinguish between regulating a buy-to-let mortgage and the suitability of buy to let as an investment for a particular consumer. Access to quality advice is actually the key element here and we are not just talking about retirees.
Mortgage advisers facilitate the most suitable buy-to-let mortgage but they are dealing with consumers who have already arrived at the decision to get involved in buy to let – the question is, have they done this with or without professional advice?
Retirees are in fact more likely to be protected because they should have received advice in order to take the money out of their pension pot, although there will of course be consumers who have ignored or not taken advice before drawing down their pension.
Arguably more vulnerable, are consumers who have just inherited a lump sum and, with no advice at all on their ability to run a buy-to-let property or its suitability as an investment in their particular circumstances, decide to enter into the buy-to-let market.
As a first-time landlord, have they considered the tax implications, rental voids, the fact that property growth may not continue and that they might not be able to dispose of the asset when needed? Most brokers do treat buy to let the same as a regulated mortgage and as part of their duty of care will assess a client’s ability to run a buy-to-let mortgage, regardless of how it is funded.
How it is funded is an important element, however, and this is where there could be a grey area in terms of where the advice liability will lie and a danger of regulatory ‘creep’ – is there the possibility that a mortgage broker may be seen as providing advice on the suitability of a buy-to-let as an investment, rather than the suitability of the buy-to-let mortgage?
It’s not a straightforward area therefore and one which would be very difficult to regulate because it should involve investment and non-investment advice in equal measure. Is there a better way of protecting consumers entering into the buy-to-let market? Access to professional, affordable advice is first and foremost as far as I’m concerned.
Mark Stopard is head of product development at Partnership
Due to the high house price increases we have seen in recent memory, there has been much speculation as to whether retirees will use their pension funds to purchase a buy-to-let property. However, I suspect that when people find out the tax implications of purchasing a property with their pension fund and investigate the work that is needed, they may look at other options.
That said, whether this is a good idea or a bad idea, is likely to depend on a person’s finances but they need to be treated as buy-to-let customers – with the full rights and responsibilities. Just because someone turns 55 and can access a ‘pot’ of cash does not mean that they are any more financially savvy than they were the week before.
Making sure they receive advice and affordability checks will ensure that they don’t invest their retirement savings into a dream which quickly becomes a nightmare of defaulting tenants, void periods and hopeless expectations around rental income.
This also means that there is less chance of a uncontrollable buy-to-let bubble developing in the short term which can have a catastrophic impact on everyone from institutions to first-time buyers.
With regards to protection, I suspect that it is not the reputable firms that we need to worry about but those who are promising 20% guaranteed returns for property in Belize.
