period, 48% was for experienced landlords to expand their portfolio and 33% was for remortgaging purposes. First-time landlords accounted for 16% of buy-to-let business, with property substitution accounting for the remaining 3%.
a markeT under review The Mortgage Market Review from the Financial Services Authority may also have a role to play in the future of the private rented sector. If the FSA’s responsible lending proposals go through unchanged then vast numbers of would-be borrowers who would be able to get a mortgage under the current regulation will be locked out of the market. Those people will need a roof over their heads and most in the market agree that the private rented sector will have to pick up the slack. “Whatever the motivation for regulation coming out of the FSA, an important consequence is that we’ve seen the high watermark on homeownership,” says Aldermore’s Colin Snowdon. “It’s already fallen back and I’d expect to see more movement downwards. We can’t look to social housing with government spending
To regulate or not to regulate
Buy-to-let mortgages are not regulated by the Financial Services Authority meaning lenders offering buy-to-let mortgages do not require FSA regulation for this activity and intermediaries can advise on buy-to-let unregulated.
When the government introduced mortgage regulation in 2004 it distinguished between owner-occupiers who face losing their home if things go wrong and buy-to-let landlords, who do not face the same risks. It was for this reason it chose not to regulate buy-to-let. However, since the onset of the credit crunch and the financial fallout as a direct result of widespread poor investment in buy- to-let, there has been ongoing debate be- tween the Treasury, FSA and the mortgage industry about whether it should remain unregulated.
In December 2009, the Treasury pub- lished a proposal to give the FSA power to regulate buy-to-let mortgages. Its reasons included concern that poor decisions by inexperienced buy-to-let landlords may not only damage their own financial positions
cuts upon us so we will see a greater role for the private rented sector.” Andrew Montlake, director of London- based Coreco, is of the view that the FSA has anticipated this shift.
“I think the powers that be want more people renting rather than having a property owning, purchase led, asset rising population. With more and more struggling to purchase their own homes, the rental sector is going to take the brunt of that,” he says. “We have always been a country in love with the idea of homeownership,” says Paul Howard of The Mortgage Works. “Renting has been considered to be a waste of money. But I wonder whether we’re seeing that culture change partly by choice and partly by circumstance. There’s a question of whether we’re moving towards a more European model of renters.” But John Charcol’s Ray Boulger says ultimately more people will end up renting because they have no choice. “The way the market’s moved already, I would think the number of people renting is likely to increase for some time,” he says. “Homeownership declined during the last
but also have knock-on effects on tenants, whose homes are at risk if their landlord is unable to keep up repayments on a mortgage.
The paper also highlighted the sort of people investing in buy-to-let. The Rugg Review found that individual landlords domi- nate the private rented sector with some 73% of all landlords being private individuals or couples.
The other concern the Treasury high- lighted was that individuals looking to exploit the market were likely to use buy-to-let to achieve that because of its unregulated sta- tus. “Such ‘gaming’ could harm consumers and the mortgage market,” it said. But the Council of Mortgage Lenders said it “did not believe that FSA regulation of the mortgage decision would mitigate the risks of market failure, which stemmed more from the investment decision than the mortgage.” Paragon’s John Heron believes the biggest barrier to regulating buy-to-let effectively is that regulating the mortgage does nothing to avert problems for credit quality in the future. If regulation was to be effective in this sector, he said, it would have to consider the point at which the property transaction takes place.
parliament and it’s likely to decline more rapidly in this parliament. In the past, where you lived was a lifestyle choice. Now people who want to buy won’t be able to and they’ll be forced to rent.”
lighT aT The end of The Tunnel
In spite of mixed opinion about why the UK is moving more towards accepting renting privately as a longer term option than in the past, the outcome is that the buy-to-let mortgage market should benefit. Woolwich intermediary business director, David Finlay, sums it up. “There is a buy-to-let light at the end of the tunnel. I think all lenders will be reviewing buy-to-let asset performance and comparing it to residential performance. Residential mortgages aren’t going to get any easier to obtain over the coming months perhaps years. The buy-to- let market looks set to grow.” Bing Crosby once sang “You’ve got to accentuate the positive, eliminate the negative, latch on to the affirmative, don’t mess with mister in-between.” Perhaps he was right. n
The industry reacted with such force that the Treasury stalled and in March 2010 published a summary of responses that conceded: “The government is mindful of concerns about the regulation proposed in the consultation, especially in view of the importance of the private rented sector, and has decided to reconsider the scope and form of the regulation to address these issues.”
But there are those in the industry who support regulation, including Alan Cleary at Precise Mortgages. He is of the Treasury view that regulation would protect the vast majority of borrowers investing in buy-to-let who are individuals.
Cleary also raises the gaming issue. “When the FSA’s approved person’s register comes in next year, all those brokers who fail to qualify will still be able to advise on buy-to-let. How can that be good for the market?” he asks. The Treasury’s decision following the
March paper is still pending but the National Landlords Association and the Council of Mortgage Lenders have teamed up to improve the education of landlords in a bid to show the authorities that the market is capable of self-regulating.
mortgage introducer NOVEMBER 2010 33
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