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parts of the country from those where redundancies occur, there will be a continuing need for social mobility. “All this means that buy-to-let will continue to not only provide great investment opportunity but will be a social necessity to meet UK housing needs. However the fundamental issue is to get building started again to provide the housing people need.” Managing director at Godiva Mortgages, Colin Franklin, sees the need for an increase in the private rented sector as an inevitable sign that more lenders will be taking the step into buy-to-let. “As demand within the private rented sector continues to grow, the need for further funding in this market will also grow,” he says. “I believe that it is inevitable that more lenders will take up the mantle to support the rental sector.” As is the Coventry way, Franklin highlights the importance of performing responsible business in buy- to-let lending in order to avoid previous vulnerabilities which were exposed with other lenders. He says: “We have always applied a prudent approach, taking great care to avoid the risks which some lenders in the past have been exposed to. We continue to focus on moderate loan to values and ensuring that we choose borrowers who are most likely to be able to manage successfully any period of rental void or repayment increases should they occur.”
The muscles from Brussels Another potential threat looming on the ever closing
horizon is the European mortgage directive. During the first draft of the proposal, many of those with an interest in buy-to-let felt something had gone awry or a printing error had occurred. The proposal looked as if it would capture buy-to-let under regulation. Since then it has become clearer that that it is indeed the EU’s intention to place buy-to-let under regulation and that has made many industry members confused or nervous or both. With the recent flurry of activity from building societies to provide in the buy-to-let sector, the Building Societies Association’s head of mortgage policy, Paul Broadhead gives us a brief outline of what’s happening in Brussels. “As currently proposed the EU directive will also capture buy-to-let lending within its scope,” he explains. “The BSA believes that this is inappropriate as buy-to-let lending is more akin to a commercial transaction and regulating it in the same way as a residential mortgage for an owner occupier is inappropriate.”
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He adds that buy-to-let mortgages have different creditworthiness assessments from residential mortgages and take into account the rental income ensuring that allowance is made for void periods. “It is not entirely clear what consumer detriment the Commission is trying to address by the inclusion of buy- to-let,” he says. “The implications for the UK market are difficult to assess at this stage as the directive would need to be transposed into UK regulation by the Financial Services Authority and whether the directive is fully harmonised or not will affect the flexibility that the FSA has in this area.” TBMC’s Young also puts forth the defence that buy- to-let, by the numbers, certainly doesn’t need to be regulated. “The UK needs a healthy and vibrant buy-to-let mortgage market to ensure the private rental sector can satisfy future levels of rental demand, as we are seeing both owner-occupation and social housing levels falling,” he says. “There is little evidence of market or consumer detriment caused by buy-to-let mortgages. Arrears are now lower that for residential mortgages and with the market still fragile and in need of nurturing as it recovers from the credit crunch, the last thing the market needs is regulation for what appears to be regulation sake! “EU regulation of UK buy-to-let mortgages is inappropriate as investment in residential property is a commercial transaction, not consumer. Private investors in residential property essentially operate as small/ medium businesses and are highly experienced with nine out of 10 landlords having been letting for six years or more.” Time scales for the implementation of the EU directive are at the earliest over two years away. This provides flexibility for the industry to oppose and prepare for buy- to-let regulation should it occur. From this vantage point of the buy-to-let industry, the future of buy-to-let looks stable and strong.
Getting in We are in a housing shortage and the ability for
people to purchase a house is still comparatively tight with draconian criteria still prevalent. The country will be looking at the private rented sector to live in and with an increased demand in tenants there’ll be an increased demand in landlords looking for buy-to-let funding. For the lenders, buy-to-let represents an attractive area
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