Bob Hunt is chief executive of Paradigm Mortgage Services
Sometimes agendas are difficult to ascertain, they are subtle, they are hidden, they are long-term campaigns only revealing themselves after the shift or result comes to fruition. Other agendas appear as subtle as a brick; they are full frontal assaults which leave you in no doubt about what the protagonists want the end product to be.
Looking at the way the buy-to-let market has been discussed and confronted recently the agenda appears to have moved on apace. Just 12 months ago I was firmly of the opinion that the buy-to-let sector was not perceived as a major priority, certainly for the powers that be. There were rumours that HM Treasury were not particularly keen to see the sector subject to full regulation, and while there was some appetite at the FCA to take on this job, its own work-load meant there was not sufficient resources to do it.
Fast-forward 12 months and the agenda seems to be far more cut and dried, and it appears to be led not by the FCA – although its representatives have publicly stated they want to regulate buy-to-let – but by the Bank of England. It’s most recent Financial Stability Report went out of its way to suggest the buy-to-let market posed a major risk to the UK economy due to a variety of concerns raised, notably around the increased level of new lending, the proportion of the market made up by buy-to-let, the potential for an influx of property coming to market during a downturn and the fact that most borrowers have interest-only mortgages which are more susceptible to rate fluctuations.
However, this focus on buy-to-let and its potential downsides began a number of months ago and again appears to have gathered momentum. In the lead up to the budget there were countless media articles about the issue of tax relief for buy-to-let landlords on their mortgage interest payments – the vast majority calling for this ‘benefit’ to be taken away in order to ‘level the playing field’. There was also a continued focus on the apparent ease of access to lending in the buy-to-let sector compared to the residential market and the damage this was doing to owner-occupation. And of course there was an ongoing focus on poor landlords, bad practice, expensive letting agents, rising rents, lack of housing supply – the cause of which is often placed at the door of buy-to-let practitioners.
Lo and behold, with all this negative focus, it seemed almost certain that the Chancellor would act in his Emergency Budget. This duly arrived with the cut in relief for higher rate taxpayers, due to be phased in from 2017, and the clampdown to the ‘wear and tear’ benefits for landlords. It looks like the concerns of the Bank, voiced in the Financial Stability Report, have fed the actions of the Chancellor and this will be reciprocated shortly.
While one can understand some concerns, and these actions may well be justified, the point is what happens next and how might this impact on the ability of the private rental sector to fulfil its role? We are in danger of forgetting the importance of the private rental market in keeping roofs over people’s head and the fact that, given the very low level of new housing supply, the housing gap would be even wider. However, this type of argument appears to have lost the battle, especially when the Bank and its Governor are able to point to certain lenders’ loosening criteria and increasing risk in order to secure more buy-to-let market share. Given the post-Credit Crunch fallout it appears the sector is on a hiding to nothing now.
Which means that we are firmly on the path to a more interventionist approach to buy-to-let – as stated above, it seems inconceivable at this point that the Bank of England, via the Financial Policy Committee (FPC), won’t seek to secure the same powers it has to curb residential lending. With ‘consumer buy-to-let’ coming under the FCA’s regulatory auspices next March how soon will it be before the entire sector goes the same way? It appears that both bodies are drawing up the evidence necessary to make a compelling case for it, and if it is aided by some over-zealous lenders then all the better.
The problems will of course come when taking the theory of intervention and regulation and putting them into practise. For one thing we will need some clarity and definitions of experienced/inexperienced/professional/amateur landlords before we begin because buy-to-let regulation and the supposed protection it is going to afford will need such foundations if it is to get anywhere. To my mind, the sector can work well – and the recent growth tells that story – but it appears the market can’t always keep itself in check on such matters and there is no appetite to allow lending in any sector to get out of control again. This means an inevitable regulatory tightening plus I’m sorry to say increased costs for all concerned.
