Should Buy to Let Mortgages Be Regulated?

by Mark Johnston

Buy to let is now a mature market which is worth billions to the UK economy. However buy to let is still a vulnerable market due to the type of properties being bought.

Property specialists Move with Us recently conduct research which showed that 51% of the estate agents they surveyed believed that the buy to let market should be regulated by the financial service authority (FSA).

If lenders had imposed tighter lending criteria 3 to 4 years ago, inexperienced property investors who got caught by the new build apartment market, might have been saved from their losses.

At the beginning of November 2011 the financial service authority’s (FSA) head of conduct policy Shelia Nicoll spoke at the council of mortgage lenders conference where she stated that the regulator can ‘see the logic’ of the buy to let market being regulated alongside residential.

Regulating buy to let mortgages however will not be straightforward and of course it will incur costs.

David Whittaker, managing director of Mortgages for Business argued that “the cost of regulation will be borne by the end borrower and that there has never been any proof that regulation delivers consumer benefit”. All of these extra costs will also just end up being passed on to higher rents for tenants.

Regulation would bring benefits to the market, under regulation the buy to let market would be properly broken down into first time buy to let investors and experienced investors who have proved they can make money from property, instead of just ‘lumping’ the two together.

Highly professional investors with a history of making money from property have been refused mortgages or have had high deposits imposed on them whilst inexperienced investors have had money ‘thrown’ at them.

Some industry expert are of the believe that regulation may help lenders, mortgage brokers, advisors and even surveyors gain a better understanding of how property investment works.

Andrew Chatterton of Franklyn Financial Management Ltd thinks that if buy to let mortgages are regulated it would mean an introduction of better, more accurate information is provided rather than the incorrect and in some cases possibly even fraudulent information that is around now on the market.

Roger Southam, chairman and chief executive of Chainbow suggests that it is “currently far too easy for people to enter the buy to let sector as a landlord and this may enable unscrupulous lenders to take advantage”.

CEO of Belvoir lettings, Mike Goddard believes that it is education not necessarily regulation, which is key in this industry. He also thinks it is important for lenders to work closely with letting agents and local surveyors to get independent and professional advice on what is the real rental potential and income stream from a buy to let property.

Many people’s thoughts are that it is only really worth introducing the costs of more regulation if it actually gets rid of the issues in the market.

The FSA has stated that “it is a matter for the government to decide whether we should regulate buy to let”.

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