Since the financial crisis, regulation has tightened.
One of the reasons the regulator is keen on adapting the market is to help prevent gaming, says Andrew Turner, director at Commercial Trust.
This refers to applicants who have a sufficient deposit but are unable to meet affordability calculations and income checks for a normal residential mortgage.
As a result, they apply for a buy-to-let mortgage pretending they will let it out when they have every intention of residing in the property themselves.
The Financial Conduct Authority has re-issued a warning to borrowers who might be tempted to make fraudulent applications, trying to game MMR affordability rules.
It is therefore appropriate that firms have procedures in place to ensure those applying for buy-to-let mortgages do not intend to live in the houses they are purchasing.
Mr Turner says there are consequences for both advisers and lenders if people are seen to be gaming. “If advisers are seen to be complicit in gaming, lenders can refuse to deal with them and report them to the FCA, threatening their livelihood.
He does not think the new consumer buy-to-let rules will stop gaming. “But brokers and advisers will now be required to go through the full regulated advice process, which will help them get a clearer picture of the individual’s circumstances, requirements and intentions.”
The new legislation cannot stop gaming completely, agrees Roland McCormack, TSB’s mortgage intermediary director, and as such, lenders and advisors will need to continue to be vigilant.
Paul Broadhead, head of mortgage policy at the Building Societies Association, says the gaming of buy-to-let, will no doubt still remain an issue for lenders from March next year.
He says the consumer buy-to-let rules are designed to provide protections for landlords who are potentially not entering into buy-to-let with their eyes wide open.
Mr Broadhead notes the rules are not designed to weed out individuals deliberately trying to pull the wool over lenders’ eyes.
Paul Clampin, chief lending officer of Landbay, says by nature gamers are trying to get around the system and present mortgages intended for owner occupation as buy-to-let loans, adding that the new rules will not change this behaviour.
