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Buy-to-let mortgages should be FSA-regulated

The BPF is calling for all buy-to-let mortgages and property investment clubs to be FSA regulated in a crackdown on reckless lending that would help refinance the housing market.

Currently, buy-to-let mortgages are treated like business loans, where as pretty much every other mortgage - such as owner-occupier or equity-release products – are controlled by the financial watchdog.

In a new report entitled ‘Responsible Regulation’ the BPF also calls for tenants living in properties repossessed by banks to be given a minimum of two months to secure alternative accommodation. The report, backed by Savills, comes as the FSA has announced plans to regulated sale and rent-back deals.

People renting homes bought on a buy-to-let mortgage generally escape immediate eviction given that lender would have expected to have tenants in the property.

However, in circumstances where properties bought on a normal owner-occupier mortgage have been rented out without permission, tenants have less right to remain.

Meetings held between the BPF and officials from the FSA and Treasury as far back as 2005 revealed a wholesale awareness of dubious practice within the residential property investment market. Both the FSA and Treasury the problem was the other’s responsibility.

The black hole of irresponsible lending has damaged both the housing sector’s reputation and the ability of banks to lend. As a result, professional landlords cannot expand their portfolios when demand for renting is insatiable.

Ian Fletcher, BPF director of policy, said:

“Many lenders simply threw money at buy-to-let borrowers during the boom without sufficient checks on who they were lending to or what they were lending for. Consumers have suffered as their buy-to-let dream turned sour and many buy-to-let lenders were at the root of our economic problems as organisations such as Bradford and Bingley found themselves over exposed to bad loans.

“We need to make sure the property-fuelled meltdown doesn’t happen again. Professional landlords have suffered as a result of banks refusing to lend. If landlords can’t expand or invest in new homes, it hurts all areas of society. It’s vital that we learn from our mistakes and don’t constrain future housing investment.”

Mark Harris, director at Savills Private Finance, said:

“The buy to let market has borne the brunt of the credit crunch and with a dearth of suitable finance available for professional landlords, we could well see an increase in repossessions. It's vital therefore that measures are in place to ensure the private rental market can continue to expand. Better regulation is therefore needed if we are to move from an age of recklessness into a period of responsibility. "

For more information and all PR and media queries, please contact Andrew Teacher, Head of Media, on 020 7802 0113 / ateacher@bpf.org.uk.

Notes to editors

The position of the tenant in situations where the landlord is in default:

Tenants should have rights when a property is repossessed. Where the lettings are lender authorised, the agreement should be binding on the lender and compliant with the mortgage agreement. Where the lender’s consent is not given, the agreement is contravened.

We support the Government’s objective: tenants provided with two months notice and to ensure good practice.

Buy-to-let lending practices.

Buy-to-let lending is not FSA regulated as it is considered more like a business loan, and there is a presumption the borrower is more financially adept. Many aren’t, and the family home can be put at risk.

We recommend that BTL loans are FSA regulated along side other mortgage products, but as a mortgage rather than an investment activity.

The investment advice provided by property investment clubs.

We would like Government to go beyond existing regulation – which, via the Office of Fair Trading, is reactive in closing down clubs that are acting unlawfully – to a regime where property investment clubs are regulated as intermediaries for the advice they provide and investment properties they source.

New regulations regulated sale and rent back schemes:

From 30 June 2010, companies operating sale and rent back must:

• Be authorised by the FSA
• Give customers a cooling off period
• Give customers security of tenure
• Not cold call or put leaflets through letterboxes
• Not use emotive terms in literature

Downloads

Radio 5 Live (Wake Up To Money) - James Moss

Radio 4 (Today Programme) - James Moss

Responsible Regulation: Reforming the Mortgage Market