the power hour
directive was delivered we thought it was a printing error that buy-to-let may be captured. In subsequent discussions that have been held with the commission and the politicians involved in this, it is quite clear it is their intention to capture buy-to-let within the European mortgage directive. That means the recent discussions with the various levels within the trade bodies here and the Treasury including the Council of Mortgage Lenders, the Building Societies Association, the British Bankers’ Association and ourselves in our discussions, we have said that in the last couple of weeks we have to move against fighting against this, to admitting that we’re probably not going to win that debate therefore we have to work out how to structure what we would want out of regulation.
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 will be a fundamental part of what will become the social fabric of the UK. We can’t afford for it to go into the wrong space. It’s a big challenge because I think the timescale for the European mortgage directive is that we will see a revised draft sometime in November, further debate and its first vote through a parliamentary body around February next year.
The likelihood is that it could hit the law as soon as June next year and therefore two years after that to implement. So a pretty tight timeframe on all of this. The Mortgage Market Review, which sits in the UK against this, is relatively benign on buy- to-let and doesn’t actually want to drag it in there because the UK regulators are quite happy with where buy-to-let products sit within the mortgage framework.
do you think buy-to-let is likely to be regulated in the retail market? RS: Retail residential properties are a definition, therefore if you are lending to a limited company then the provisions of the directive wouldn’t apply. How you get that written into UK legislation is probably a bit more complicated. NS: The trouble with that is that as soon as it goes to a limited company that counts out BM Solutions and TMW partnerships. They’re not going to lend to limited companies. That probably takes out about 90% of your available funding for buy-to-let in the UK.
from a broker point of vieW, do you think regulation Will change investor demand? AM: For the serious investor it wouldn’t make too much of a difference. If they have to do it as a limited company, they’ll do it as a limited company after working out the costs and making a commercial decision accordingly. Traditionally those guys did it as a limited company anyway. NS: A broker getting paid then becomes hard doesn’t it? Because a lender then takes on the deal in-house through their commercial guys and you’ll lose the payment. AM: Potentially, not every lender is like that. RS: The biggest problem behind this is that if you currently have assets in your own name and then have to transfer them to a limited company, you’ll incur capital gains tax penalties and that’s the bit which we need to find a way of avoiding as it’ll kill the market. IP: That’s one of the biggest problems in the buy-to-let market, it’s the bad CGT planning by the landlord. They haven’t wanted to hear the message which the broker has given them.
LK: The tax adviser becomes key in situations like that. We always suggest our buy-to-let clients should talk to a tax adviser before they engage in anything because the implications are huge. It’s so specialist, we try and steer clear of it and push them to a tax adviser. IP: What you’re doing is at least pointing them in the right direction. LK: Absolutely, it’s the same with wills and things like that.
What’s treasury appetite to sort this problem out? RS: The work done on behalf of the industry for this by both the Treasury and the Financial Services Authority has actually been of high quality. The guys working on this have a better understanding of the issues than most of the other people I come across and the work they’re trying to do to try and avoid nasty things happening to UK plc has been very strong and robust which I’m gratified by. The good part about the negotiations which are happening in Europe is that they’re still working on national interests, they haven’t broken down to the political interests. While it’s at national interest levels, it’s easier to get these things argued through government.
in the early days, buy-to- let Was about making investment in the rented sector easier for landlords, is that the situation We’re in today? IP: It was to make it easier and more affordable because traditionally, pre-1996 we were looking at commercial lending for a landlord who wanted to buy a property. You were often looking at base plus three or base plus four and higher. What we succeeded in doing, with the conception of buy-to-let, was getting lenders to lend with perhaps no more than 0.5% variance
Catch-up with the news @mortgagechat 42 mortgage introducer OCTOBER 2011
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