CFI: Commercial Tailor regulation by
Rob Lankey, managing director, Commercial Mortgages, Aldermore
As the regulatory bandwag- on rumbles on into 2012, one of the key issues will be whether the buy-to-let mar- ket will survive unscathed. The debate has not yet been resolved as to whether the buy-to-let market should be regulated in the same way as residential mortgages, or whether buy-to-let deals should be categorised as business rather than con- sumer transactions. The popular perception of the buy-to-let market is of thousands of individual investors buying one or two properties which form part of our retirement fund and which are then let out to lo- cal tenants.
Based on this view, it may seem logical to regulate buy- to-let in the same way as the rest of the residential mort- gage market. After all, if I own the house I live in and a house I rent out, why should the regulatory regime which governs how I finance both be different? The answer is because one is a consumer transaction which is assessed based on the applicants’ ability to af- ford the loan for which they are applying, whereas the other is a business transac- tion in which the viability of the deal is determined based on the income generated by the rental property. This distinction is of fun-
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damental importance. Buy- to-let is a business and not a consumer transaction. It’s also important to bear in mind that although there are thousands of individuals who buy one or two buy- to-let properties, there are also thousands of profes- sional investors and land- lords, many of whom own portfolios containing dozens or even hundreds of rental properties. It is these profession- al landlords who act as the backbone of the pri- vate rental sector and it is essential that any regula- tory changes do not disin- centivise them from con- tinuing to invest in rental property. The truth is that without the private rental sector, the UK government would be in real trouble because the public sector would simply not be able to satisfy demand. I’m not suggesting that regulation should bypass the buy-to-let market alto- gether. However, regulation does need to be tailored to the needs of the market be- ing regulated and it’s not acceptable to simply apply regulation on a blanket basis because it’s administratively easy to do so. We do need to ensure that the buy-to-let market is a safe place to do business and doesn’t fall prey to fraud- sters and the criminal frater- nity. However, we also need to ensure that the market can continue to operate nor- mally and is not impeded by inappropriate, regulation.
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ACM10-0112-200013 MORTGAGE INTRODUCER MARCH 2012 45
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