At a Mortgage Introducer roundtable this week, Association of Mortgage Intermediaries director Robert Sinclair said he thought the sector would fall into the regulation. Commenting, IMLA chairman John Heron said: “It is certainly not a foregone conclusion that buy-to-let will become a regulated product under the European Mortgage Directive, and it remains IMLA’s belief that buy-to-let should sit outside of the Directive.
“Buy-to-let is a commercial product and it simply cannot be regulated effectively via a consumer-focused regime. We believe that this also remains the position of HM Treasury, the Financial Services Authority and the Council of Mortgage Lenders.
“There is still some way to go before this issue is resolved and the political process has yet to run its course. We must ensure that the EU, MEPs and other member states appreciate the clear differences between buy-to-let and the owner-occupied market. For example, the standard affordability model does not work with buy-to-let because it is the income generated by the underlying asset that drives a lending decision, not the borrower’s ability to afford the mortgage.
“In addition, regulating the mortgage product itself does not address the risk to the property investor. The success of a buy-to-let investment depends on the decisions made by the landlord, such as what type of property they invest in, where they invest and which tenant groups they target. Those decisions will dictate the performance of their buy-to-let investment rather than the mortgage product they choose to finance their investment.
“Buy-to-let will be central to the growth of the private rented sector in the UK market and it is still in a fragile state of recovery following the credit crunch. Applying inappropriate regulation to the market at this stage could hamper its recovery and reduce much needed finance for the PRS, at a time when tenant demand is clearly outstripping supply and is likely to do so for some time to come yet.”
At the roundtable Sinclair said the Treasury and the Financial Services Authority have accepted that buy-to-let will be regulated under the European Mortgage Directive and have had to move on from fighting against it.
He said: “We’re probably not going to win that debate therefore we have to work out how to structure what we would want out of this.
“If we go into a standard mortgage affordability model then buy-to-let isn’t going to work.
“We’ve got to change European thinking how that buy-to-let model structure works because it’s already been identified that this is going to be a fundamental part of what forms the fabric of the UK going through the next decade.”
Sinclair also discussed the time scales for the EU Mortgage Directive saying a revised draft would probably be published in November followed by further debate and then its first vote through the European parliamentary body around February next year.
