There are concerns about homeowners using buy-to-let to fund their own property rather than renting out, says Bob Young, chief executive of Fleet Mortgages.
This practice has been defined as buy-to-let ‘gaming’ and has hit the headlines more recently following the Mortgage Market Review requirements coming into force.
The reason for this is that some residential borrowers now find it much more difficult to secure a mortgage of late due to affordability/income constraints brought in by lenders because of the MMR.
The fear has been that borrowers unable to secure a mortgage for their own home would try to ‘game’ the system by getting round the affordability issues and pretending they are purchasing a property to rent out.
Buy-to-let is predominantly unregulated and borrower income is not seen as being such a big factor in the lending decision.
Mr Young says lenders are certainly wise to this happening and those with strong fraud checks and processes in place are able to counter the potential for this ‘gaming’.
While the risk of gaming has received considerable attention since implementation of the new rules, Charles Haresnape, managing director of mortgages and commercial lending at Aldermore, says there has been no evidence of wide-scale abuse.
Lenders have responded to the regulator’s concerns by tightening underwriting procedures and back-book monitoring, and as such Mr Haresnape says additional regulation in this area seems unnecessary at this time.
He adds lenders and advisers should take a common sense approach, and if there is any doubt, it is always wise to call the bank’s underwriters to discuss complex scenarios.
Mr Haresnape says: “Lenders are committed to minimising buy-to-let abuse in a number of ways.
“During fact-finding, advisers will establish the applicant’s personal and letting plans, and will investigate further in the case of any anomalies or additional complexities, such as where the applicant’s residential arrangements are not clear or where there is an inter-family sale.
“Additionally, post completion, voter roll checks can be used to confirm the occupancy of the property and ensure there is no abuse.
“Advisers are well aware of the risks of gaming due to information from regulators, lenders and the media coverage, and industry practice is constantly evolving to make sure no abuse is taking place.”
What is clear is both advisers and lenders need to be vigilant that gaming is going on.
Fleet Mortgages’ Mr Young says: “I have heard examples from lenders who run both residential and buy-to-let operations where a residential borrower was declined by one side, only to find they attempted to secure a buy-to-let mortgage for the same property through the buy-to-let business.
“Lenders should certainly be able to detect this practice however a plethora of new lenders, with limited experience in this sector and fewer systems in place, may find they increasingly become targets for this type of mortgage fraud.
“It is a concern that everyone in the market needs to be vigilant against. Some lenders are not allowing first-time buyers to take out buy-to-let mortgages as this was an obvious move by some would-be gamers.
“For others it will all be about sense-checking the deal, for example, we had a borrower looking to secure a mortgage on a beautiful and expensive property however the rental yield was deemed to be a very low 3 per cent.
“A few questions and digging uncovered that the actual ‘real deal’ was a home loan. We took the appropriate action.”
