Most advisers do not appreciate the complexities of this regulation or non-regulation until we start to discuss it.
Business BTL is not regulated by the Financial Conduct Authority (FCA), meaning technically anyone can start their own BTL mortgage adviser business without regulation or qualification.
However, it is not that straightforward as most BTL lenders will not accept an application from an adviser who is not part of a regulated company.
To transact non-FCA regulated BTL, some lenders insist the adviser, as a minimum, holds a consumer credit permission with the FCA. Some, in fact over 50 per cent of the lenders in the BTL market, require the adviser to have full residential FCA regulated permissions.
The result is that many commercial brokers with just consumer credit permission would be unable to advise on BTL mortgages from lenders such as BM Solutions, The Mortgage Works and even Kent Reliance.
There are, however, two types of BTL that are regulated.
The first is consumer BTL. Since the implementation of the Mortgage Credit Directive (MCD) a separate FCA permission is needed to advise on this product type.
A consumer BTL is where the client has become an ‘accidental landlord’. An accidental landlord could have inherited a property or be someone who used to live in the property and has decided to keep it and let it out.
This, however, is not straightforward. If the client specifically chose to let out the property for business purposes it could still sit outside the consumer BTL regulation.
Lenders’ criteria vary around this point, so with one lender an adviser would need this FCA permission to advise on the above, but may not need it for another lender.
The second is family BTL. Family BTL is where the property is let out to an immediate member of the family and requires full regulated residential mortgage permissions.
Capital raising also has its quirks.
It is natural to assume that if a client is borrowing money secured against their main residence, this would also require full regulated permission.
However, if money is raised for ‘business purposes’ then this would fall outside of regulation.
For example, the client may have a first charge loan on their home, but wish to use the equity to capital raise some money to invest in equipment for their business.
If they raise a second charge on their own home for this purpose, the loan will not be regulated, and depending on the lender’s policy, the adviser may not need to be regulated either.
The complications do not stop there. Advisers transacting commercial mortgages will need FCA consumer credit permission if the clients are buying in their personal name, but no permission if the client is buying via a limited company.
Many of these quirks come off the back off the MCD, which was driven by the EU. It will be interesting when we finally ‘Brexit’ if the FCA chooses to sort out some of these anomalies.