The first is the one which is released in dribs and drabs before announcing itself in the market; sometimes justifying its fanfare while occasionally disappointing. However, the other is the one which almost slips under the radar and then explodes, often sparking confusion and debate throughout
the industry.
The news that buy-to-let (BTL) could be included under changes to the Consumer Credit Act (CCA) definitely falls into the latter categories. While many within the sector were looking forward to 2007 and predicting augmented business going forward, behind the scenes negotiations and decisions had been going on about the possibility of formal regulation coming to the BTL market for the first time.
Linda Will, managing director of Accord Mortgages, remarks: “I’m not sure why so little has been said about it, but I think it is building up a head of steam now. If you ask people, they will talk about it openly, but the Council of Mortgage Lenders (CML) is negotiating with the government so it wouldn’t go public with this as it could cause some friction.”
Potential impact
Some of the details are now starting to appear about the potential impact any legislation could have on the BTL market. If the sector were to come under the CCA, no upfront fees could be levied on a BTL product, meaning these costs would have to be added onto the loan. Also, interest only deals would not be allowed, resulting in all BTL mortgages being repayment deals instead of the current situation where nearly all are interest only. Finally, all BTL deals would come under the CCA if the landlord in question owned fewer than three properties, with exceptions for high net worth clients.
Mike Davies, director of compliance at Infinity Mortgages, believes the potential changes to the CCA could inevitably throw up many problems.
“The typical BTL investor has one or two properties so most investors will not be classed as businesses and so will come under the CCA. Also, if no valuation or arrangement fees can be charged, what about when the deal doesn’t complete? Around 40 per cent currently don’t but the borrower who does complete then pays for those who do not.”
The ultimate worry for those in the industry would be that BTL regulation would put a tight stranglehold on the small landlord, thereby truncating the BTL sector and putting addition pressures on the rest of the housing market.
As Will warns: “It would be the equivalent of killing off the first-time buyer in the residential market. This could be over-egging the pudding here, but small landlords bring plenty to the market and if property is not taken up by them then we could find ourselves in trouble.”
Nothing confirmed
Despite the potential for such a calamity, there is the major factor that nothing has ultimately been confirmed as of yet. There is still a great deal of uncertainty in the sector at the moment, as the final details of how the CCA will change, and BTL’s possible part within it, have yet to be published.
In the eyes of many close to the debate, including Gus Park, head of BTL at Mortgage Express, there is a genuine belief that the government does not want to see BTL come under the CCA.
Park comments: “We are a long way from the finish as I do not believe the government wants to capture BTL investment under the reviewed CCA. I don’t think BTL will be incorporated within the legislation, as it’s not a practical approach to have half the sector regulated and half unregulated.”
Unanswered questions
However, while Park and the CML believe the government will keep BTL separate from the CCA changes, time is running out for those who may potentially be affected by the changes of heart that seem synonymous with the current government. The timetable, as it currently stands, puts the introduction of the amended CCA at April 2008 and there are still plenty of questions yet to be answered.
For Sue Anderson, head of external affairs at the CML, lenders will need to know one way or another very soon.
“The clock is ticking and we are running out of time. Mortgage lenders need time to plan as if some of the BTL market is captured under the CCA then they need to have time to put the systems in place to deal with this eventuality. Putting in new systems is never a simple thing and lenders will need at least a 12-month window to do this. We are still hoping for the right result in terms of BTL but the more important factor now is getting a decision quickly.”
Therefore, all eyes will be on the Department of Trade and Industry to see what side of the line it comes down on. While it seems BTL will emerge from the parapet relatively unscathed, a twist of Shakespearean propositions could see the dark clouds return with dramatic effect.
