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Guide to Buy-to-Let MortgagesThe regulation of buy-to-let mortgage advice
Although there are no specific FSA rules over BTL mortgages, the regulator still expects all regulated firms to treat customers fairly even when advising on a non regulated product, points out Ray Boulger, senior technical manager at John Charcol.
However, Greg Went, senior product manager at Nationwide, adds that in the event that the prospective landlord intends to let the property to their spouse, civil partner, parent, brother, sister, child, grandparent or grandchild, then the mortgage will be regulated by the FSA due to the property being used as dwelling by a close family member.
And, stresses Mr Went, while most BTL loans are treated as commercial loans in the UK and are outside the scope of the FSA, the implementation of the regulator’s new Mortgage Market Review rules may be influenced by the EU, which treats buy-to-let as regulated loans
The EU directive on credit agreements relating to residential property (CARRP), which seeks to harmonise mortgage regulation across member states, has been working its way through the European legislature for the best part of two years, notes Mr Went.
“The UK has been seeking an exemption for buy-to-let from the outset based on the argument that buy-to-let is a commercial activity and therefore not entitled to the protections offered under this ‘consumer’ directive,” he says.
“As this matter remains under debate – the buy-to-let market in the UK is likely to remain as it is for the foreseeable future.”
Mr Boulger observes that the UK Treasury also consulted several years ago on whether BTL mortgages should be regulated by the FSA and as a result of the consultation has taken no action on pursuing the issue.
The main hurdle, he suggests, appears to be deciding where to draw the line between a regulated BTL mortgage and an unregulated commercial mortgage.
He adds that despite much lobbying from the UK, one important aspect of CARRP which the EU has not been able to agree on so far is whether BTL mortgages should be regulated and he thinks it could be yet more years before there is any effect in this country.
“The jury is still out on whether CARRP will have an impact on BTL mortgages, but if it does it will not be for several years.
“Assuming CARRP eventually sees the light of day the EU will have to allow a long lead time for implementation because some EU countries will be virtually starting the regulatory process from scratch, because they have little or no current mortgage regulation.”
