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FSA Goes After BTL And 2nd Charge Loans

Posted on November 26, 2009 by editor
Posted in Buy To Let Property, Finance & Mortgages, UK Property Market Comment Tagged , , , ,

regulationsYesterday we had the news that the FSA are definitely looking in to regulation of Buy To Let loans and remortgages.

The FSA has hinted at this further regulation of mortgage lending several times already. They believe it will stamp out ‘excessive’ property price increases in the future. The proposals also include controls to protect borrowers when lenders sell on mortgage books to third parties.

Reform?

Speaking for the government, Sarah McCarthy-Fry, exchequer secretary, said:

‘We are determined to reform the system for the future, to offer both stronger protection for consumers and greater stability in the housing market.’

Lenders however are concerned about plans to regulate buy-to-let mortgages. The Council of Mortgage Lenders said:

‘If the aim is to protect amateur property investors from poor property investment decisions, then regulating the mortgage process – as opposed to the sale process – will not necessarily address this.’ ‘And there is little evidence of consumer detriment to buy-to-let mortgage borrowers arising out of their mortgage borrowing, so the case for extending regulatory scope here is not clear cut.’

On the side of the landllords Chris Norris, policy manager for the National Landlords Association, said:

‘NLA is pleased to see that HM Treasury has recognised that many landlords operate as a business and should not be treated like consumers when seeking finance. However, we still have some concerns about the effect that more regulation could have on the cost and availability of buy-to-let mortgage finance, and on the market’s overall recovery.’

As we commented above the FSA are also looking into remortgages and secured loans for regulation too. This is a new twist, not commented on before by the FSA to my knowledge.

Firms offering second charge loans must be licensed by the Office of Fair Trading. The proposals have caused concerns from loan providers that splitting the regulation of the loans between the OFT and FSA could cause confusion for both lenders and consumers. They definitely have a point there in my view. If they intend to regulate it, it should be in the same place as all the rest, or there will be even more scope for abuse and mismanaged information later on down the line.

You can see where they are going with this, as defaulting on a second charge loans can sometimes lead to a repossession if the owner falls behind with the extra payments, The OFT has previously expressed concerns that the practice among lenders must improve.

More Legislation = More Tax?

There was regulation of the rented sector including rent control by the Labour Government just post war, it was a complete failure.Regulating fairly is about achieving a balance, which is something the FSA don’t seem to have a clue about so far. Whatever legislation is brought in, my view is that their prime objective will be to increase tax receipts. Too much regulation will damage the fragile housing market, regulation generally slows process whilst everyone involved changes terms and conditions and practices to try an keep up with it all. There are so many rules and regs already for the landlord, the majority of which are not beneficial to the tenant. ( EPC anyone?) We really don’t need more tinkering with the system to make an already overly complicated situation worse.

Property values increased due to demand and shortage of supply. The crash was mainly caused by bankers gambling huge amounts of money on risky investments in the American sub prime market, and it was Gordon Brown whose legislation and fiscal incompetence enabled them to do it, not the landlords who are just trying to make a living whilst wading through a raft of legislation.

What are your thoughts? Would you like more regulation, or perhaps a complete overhaul of the whole system is called for? As always, your comments are welcomed.

( Extracts taken from City Wire news channel.)


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  • Mortgages_uk

    Hi

    Most lenders branded Buy To Let mortgages as Toxic debt and i think it would be fair to say that some people on the street believe that it was this type of mortgage that caused the financial crisis. The FSA has come under fire over the last 18months and so it stands to reason that as the FSA are facing their biggest challenge, if the tories get in, they are looking to convince the general public that they are sorry and that they will not let this happen again. How do they propose to do this? They are considering Regulating Buy To Let mortgages.

    Now regulation is not a bad thing, if it was done to protect the first time landlord from the greedy banking system, but i fear that this not high on their list of priorities. Unfortunately its all about clearing their name and making them look good again.

    Yes Buy To Let needs some sort of regulation but not the way that most of us investors want it.
    What they need to regulate is:

    1. Property Sourcing companies who sell properties and then offer to finance them for you.
    2. Banks should be made accountable for their loan book and should not lend like there is no tomorrow…ie dont get Greedy
    3. If a landlord gets into trouble the banks should treat the loan as a Regulated contract and not a commercial contract….as Barclays do.
    4. LPA's should not be allowed to collect the rent and take out massive fees on a monthly basis..therefore compounding the problem
    5. If a tenant is paying their rent on time, then a bank should not be able to give them notice to quit
    6. If a landlord falls into arrears because the tenant is not paying rent, the lender should not be able to move to repossess the property…did you know that if you are in arrears on your mortgage and the tenant is not paying rent…you cannot go to court for repossession of the property. I was recently at a court hearing with a client and the tenant successfully argued that he did not pay the rent as the bank had told him his landlord was in arrears. Arrears caused bythe tenant not paying his rent in the first place.
    7. Banks should look at capitalising arrears especially if a tenant is not paying rent…well atleast during the Landlords repossession process.

    There maybe other things that could be added to the list…I will wait to read and add those to my blog as well.

    Thanks

    Wasim

  • Mortgages_uk

    Hi

    Most lenders branded Buy To Let mortgages as Toxic debt and i think it would be fair to say that some people on the street believe that it was this type of mortgage that caused the financial crisis. The FSA has come under fire over the last 18months and so it stands to reason that as the FSA are facing their biggest challenge, if the tories get in, they are looking to convince the general public that they are sorry and that they will not let this happen again. How do they propose to do this? They are considering Regulating Buy To Let mortgages.

    Now regulation is not a bad thing, if it was done to protect the first time landlord from the greedy banking system, but i fear that this not high on their list of priorities. Unfortunately its all about clearing their name and making them look good again.

    Yes Buy To Let needs some sort of regulation but not the way that most of us investors want it.
    What they need to regulate is:

    1. Property Sourcing companies who sell properties and then offer to finance them for you.
    2. Banks should be made accountable for their loan book and should not lend like there is no tomorrow…ie dont get Greedy
    3. If a landlord gets into trouble the banks should treat the loan as a Regulated contract and not a commercial contract….as Barclays do.
    4. LPA's should not be allowed to collect the rent and take out massive fees on a monthly basis..therefore compounding the problem
    5. If a tenant is paying their rent on time, then a bank should not be able to give them notice to quit
    6. If a landlord falls into arrears because the tenant is not paying rent, the lender should not be able to move to repossess the property…did you know that if you are in arrears on your mortgage and the tenant is not paying rent…you cannot go to court for repossession of the property. I was recently at a court hearing with a client and the tenant successfully argued that he did not pay the rent as the bank had told him his landlord was in arrears. Arrears caused bythe tenant not paying his rent in the first place.
    7. Banks should look at capitalising arrears especially if a tenant is not paying rent…well atleast during the Landlords repossession process.

    There maybe other things that could be added to the list…I will wait to read and add those to my blog as well.

    Thanks

    Wasim

  • http://www.todayloan.co.uk Frank Polenose

    I think this may all change with the new government – tough to know though.

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