The Financial Conduct Authority has published its consultation on new government rules defining for the first time ‘consumer buy-to-let’ mortgages as part of its implementation of the European Mortgage Credit Directive.
In it the regulator reveals intermediaries should not pay more than £250 in registration fees to sign up as part of its new oversight function to monitor a market it estimates to make up a little more than 10 per cent of buy-to-let business.
Consumer buy-to-let (CBTL), so defined to ensure minimum compliance with the broadly targeted MCD, is defined as where the borrower does not seem to be acting in a business capacity, for instance where the property has been inherited or where they have previously lived in a property but are unable to sell it.
In these cases, the borrower is a “landlord as a result of circumstance rather than through their own active business decision”, therefore needing to be covered by an “appropriate framework”. All other buy-to-let transactions will remain outside the scope of conduct regulation.
The FCA estimates around 11 per cent all buy-to-let deals a year would fall under the new definition. All intermediaries, lenders and others involved in these transactions will need to register with the regulator.
At this stage the watchdog does not anticipate that the fee for already authorised firms registering to become a CBTL firm would exceed £100, with the fee for other firms not expected to exceed £500. Intermediaries are expected to pay no more than half of this amount.
“As we anticipate that volumes of CBTL business will be relatively low, we are not proposing to introduce an activity-based calculation of the periodic fees payable by CBTL firms.
“From a preliminary analysis of implementing similar legislative regimes, we would not expect them to exceed £500 for lenders or £250 for intermediaries.”
Around 160,000 buy-to-let mortgages are estimated to have been sold in 2013, which suggests that the current size of the CBTL market is approximately 17,600 mortgages a year.
According to Mortgage Lenders and Administrators Return data, around 100 authorised mortgage lenders advanced buy-to-let mortgages in the second quarter of 2014, with more than half of these selling fewer than 10 buy-to-let mortgages over the period.
“As we expect only a small number of unauthorised lenders to carry out CBTL activity, we believe that no more than 100 lenders will register,” stated the regulator.
“We believe that it is current market practice that lenders generally tend to accept intermediated buy-to-let business only through FCA-authorised mortgage brokers.”
It added that somewhere in the region of up to 800 brokers could register with the FCA to carry out CBTL mediation.
In terms of costs, the median from a sample of a dozen lenders’ estimated one-off compliance costs was in the region of £28,000. So if the predicted 100 lenders register to carry out CBTL activity, this would place the aggregate one-off cost in the region of £2.75m.
peter.walker@ft.com
