News Review: Buy-to-let
Trade bodies consider “best” BTL regulation By Yuan Phoon
mortgage industry trade bodies have thrown their hats into the ring to defend the uK’s buy-to-let sector after ami suggested that regulation was a done deal in europe. as it stands european regulation may catch buy-to- let lending done to individuals although the final wording of the european directive on contracts relating to residential Property is still being debated in Brussels. robert Sinclair, director
of ami, said at a Mortgage Introducer roundtable that various mortgage industry trade bodies were now looking at how the buy-to-let model structure would work under regulation. He said: “if we go into
a standard mortgage affordability model, buy-to-let just isn’t going to work. “We need to find a way
of changing european thinking of how that buy-to- let model works because it’s already been identified that this is going to become a fundamental part of what will become the social fabric of the uK that we can’t afford for it to go into the wrong space.” But the
intermediary
mortgage Lenders association believes buy-to-let can still be saved from the regulatory grasp. John Heron, chairman
at imLa, said he was still lobbying against any kind of regulation. “it is certainly not a
foregone conclusion that buy- to-let will become a regulated product under the european mortgage directive and it remains imLa’s belief that buy-to-let should sit outside
of the directive,” he said. “Buy-to-let is a commercial product and it simply cannot be regulated effectively via a consumer-focused regime.” Heron also said using the
affordability model to regulate was a compelling reason to intervene. He said: “the standard
affordability model does not work with buy-to-let because it is the income generated by the underlying asset that drives a lending decision, not the borrower’s ability to afford the mortgage.”
Mutual view With an increasing number of building societies entering the buy-to-let market, the Building Societies association also waded into the debate. Paul Broadhead, head of mortgage policy at the BSa, said: “it is clear that the european commission would like to regulate buy-to-let lending and that there is some support for this amongst some members of european parliament. “in the course of our analysis of any regulatory proposal it is common for us to fully assess the impact on both industry and consumers. as part of this analysis discussions with other industry bodies are common to ensure that new regulation doesn’t have any unintended consequences on the market. “it is still early days in terms
of progress of the directive so we will continue to assess developments with other industry partners over the coming months.” the european mortgage directive was published on 31 march 2011 when the
14 mortgage introducer OCTOBER 2011
european commission said that the objectives of the directive were twofold: “First it aims to create an efficient and competitive single market for consumers, creditors and credit intermediaries with a high level of protection by fostering consumer confidence,
customer
mobility, cross-border activity of creditors and credit intermediaries and a level playing field. “Second, the proposal seeks
to promote financial stability by ensuring that mortgage credit markets operate in a responsible manner.” However trade bodies
and lenders in the mortgage industry alike have argued buy-to-let should maintain its freedom from regulation because the transaction is a commercial decision made by property investors. Pundits argue this means
there is little if any need for consumer protection through regulation. Sinclair said the timescale for the implementation of the european mortgage directive is likely to be two years away at the earliest. Whether it will capture buy-to-let or not and in what format remains to be seen however it hasn’t prevented lenders from entering the lucrative market.
Competition Jeremy Law, head of buy- to-let at Yorkshire Building Society, said: “our gradual entry into the buy-to-let market reflects our measured approach to what is a new area of lending for us and we believe a cautious approach to lending will ensure buy-to-let remains a viable solution for
the uK home market. “With other lenders
expected to enter the market over the next year, we feel it is an area where additional players bring greater product choice and provide more options for brokers, reinvigorating the market.” State Bank of india also
launched into the uK buy- to-let market in recent weeks while Santander has also indicated in the past year it is considering the sector. ian andrew, head of intermediary sales at the mortgage Works, said: “Landlords are increasing the size of their portfolios to cater for an increased demand for rented accommodation, while new landlords may want to consider entering the market. there are definitely still headwinds, but the economic indicators for buy-to-let remain positive. “over the past 15 years, buy-
to-let has established itself as fulfilling a real social need. although attitudes may be shifting, i believe we are still largely a nation of aspirational homeowners. “However, given the unprecedented economic difficulties we have faced in recent years, there is an increase in demand for rented accommodation, particularly for first-time buyers saving for a deposit.” council of mortgage Lenders statistics show buy- to-let loans in arrears of three months including receiver of rent cases was 2.09% for the second quarter compared to the 2.14% arrears rate for owner-occupied mortgages.
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