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Buy-to-let | 13
However, while buy-to-let investments may be
commercial transactions, they have become an
increasingly mainstream option and as a result it
may be fair to say that it is an area which should
be included in the FSA remit. The regulations
were originally designed for the ordinary con-
sumer but as many are now professional land-
lords who potentially warrant the same FSA
protection as other borrowers.
The fact this is not regulated may well be
viewed as somewhat of an anomaly. As well as
these professional landlords aforementioned
buy-to-let mortgages are taken out by people
who may have no idea that the application is
subject to the same regulatory controls as their
residential mortgage. Maybe is not such as
unreasonable request for them not to have the
same rigours extended to them.
Single regime
In most cases brokers span the great divide
between residential and buy-to-let mortgages
and there is a strong case to suggest that it makes
sense to have a single regulatory regime in place
which encompasses a broker's entire mortgage
advisory portfolio. With so many buy-to-let
lenders already regulated there is a case to put
forward at to whether this really likely to cause
that much upheaval.
Litigation So, the definition of mortgage does not cover That is certainly the burning question and it is
The firm also suggested that some brokers may t also important to identify that any further costs
now face the threat of litigation if any buy-to-let circle6
he following:
buy-to-let mortgages, (unless the tenant is a incurred by additional regulation need to be fully
investor can support a claim that the broker pro- member of the borrower's immediate family, justified. There is also the effect this move may
vided advice that went further than purely that or the borrower intends to occupy the proper- have on the market, any more negativity this may
of providing a mortgage. It expressed its concern bring could prove to be the straw that broke the
that litigation lawyers could have a strong case circle6
ty at some stage);
camels back.
against a broker if they recommended buying circle6
second charge loans; and
loans to companies (except in the case of As with any major decision there are pro's and
properties as an investment using a buy-to-let trustees). con's attached and these need weighing up in
mortgage. On the other hand, as well as loans for house great detail before any decision is made.
Without delving too deeply into the regulatory purchase, where the security is a first charge over Buy-to-let remains an important sector in the
regime it might be a timely juncture to outline the borrower's residential property, the following market even though there is no getting away
which mortgages are covered by the FSA and loans potentially fall within the definition of 'reg- from the current shrinkage and a vital one for
obviously which aren't. The following is an ulat many UK national and immigrants seeking good
exert from a recent FSA factsheet for small circle6
ed mortgage contract' and FSA regulation:
lending for home improvements (including, quality private rented accommodation. Indeed a
firms. (Source: Factsheet: FSA regulation of recent study by Your Move has revealed that the
mortgage arranging and advising – do I need circle6
for example, some in-store credit);
number of tenants committing to new leases rose
to be authorised? circle6
lending for debt consolidation;
business lending to sole traders and to part- 1.3 per cent in November 2008. It attributed the
(www.fsa.gov.uk/smallfirms/resources/fact- increase to would-be property buyers signing up
sheets/pdfs/mortgage_arranging.pdf) circle6
nerships in England and Wales;
secured overdrafts and secured credit cards; for short leases while they wait for property
'Under legislation, firms need to consider prices to fall further.
whether they require FSA authorisation to carry circle6
and
bridging loans' There is no easy answer and throwing in my
out activities relating to regulated mortgage con- As a lender who deals with regulated mort- two penneth I believe that it is appropriate for it
tracts. Not all loans secured on land are caught gages in addition to buy-to-let mortgages, it is to become a regulated sector. Fortunately the vast
by the definition of regulated mortgage contract. fair to assume that similar controls should be in majority of brokers and lenders already treat
In broad terms, a regulated mortgage contract place to cover all aspects of the overall lending buy-to-let the same as residential mortgage in
must meet the following conditions at the time it process. terms of regulatory requirements and TCF prin-
i
circle6
s entered into: ciples so a number of issues have already been
the borrower must be an individual or a Commercial negated and these will certainly help make the
circle6
trustee; One of the main reasons why buy-to-let remains process smoother and ultimately less costly.
the lender must take a first legal charge over outside the FSA's remit is the fact that it is pri- How the Treasury - as it is ultimately not
circle6
property in the UK; and marily a commercial transaction and not one the FSA's decision - see this is another matter.
at least 40 per cent of the property must be being made by ordinary consumers in order to Its thoughts and actions are as yet unknown
occupied by the borrower or a member of put a roof over their heads. This means that bro- but it would be no surprise to see this subject
their immediate family, or intended for their kers specialising in this sector of the market have firmly on its agenda again in the not too distant
occupation. no need to be regulated. future.
www.mortgageintroducer.com Febuary 2009 Commercial finance Introducer
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