The CML agrees with the proposals to extend regulation to cover second-charge mortgages, and to ensure that borrowers are sufficiently protected when mortgage books are sold on, but disagrees for several reasons with the proposal to extend “conduct of business” regulation to buy-to-let lending.
On second-charge lending, the CML’s longstanding position has been that all secured lending should be regulated in the same way under the FSA. This would create a coherent and comprehensive framework, more aligned with EU regulation, although there is a need to ensure that the impact on low-cost home-ownership is properly considered before proceeding.
The CML also agrees that consumers could potentially suffer when mortgage books are “sold on”, and that regulatory scope should be extended to address this. However, regulation should only cover acquirers when they take day-to-day decisions on the interest rate, other charges, service levels, and arrears management. Where the power over these decisions has been delegated to a servicer or administrator, which is itself regulated for these activities, then there should not be “double” regulation. The CML cautions that it is also crucial to avoid unintentional problems for securitisation and covered bond transactions.
However, the CML disagrees with the proposal to extend regulation to buy-to-let loans. It would not result in increased consumer protection, would almost certainly capture an inappropriate range of commercial transactions, and fails to address the issue of advice on whether to invest in property at all, which is much more likely to be a cause of consumer detriment than the mortgage itself. It is also the wrong way to address concerns about systemic risks, which are more appropriately addressed through prudential rather than conduct of business regulation.
The CML’s response says: “Fundamentally, the CML still believes that buy-to-let loans are essentially commercial transactions with an investment dimension, and should not be subject to retail mortgage regulation. Inappropriate regulation could further damage buy-to-let lending, which has shrunk substantially in the last two years, at a time when the government is separately promoting investment opportunities in the private rental sector. Extending the FSA’s scope as proposed would undermine the government’s wider housing policy.”