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FCA: Buy-to-let gaming still a problem

Sarah Davidson

June 4, 2015

A spokeswoman from the FCA said: “We are aware that some borrowers might be tempted to make fraudulent applications to get around the affordability rules – this is an area we are keeping under review.

“Firms need to have procedures in place to ensure that people applying for buy-to-let mortgages do not intend to live in the houses they are buying.”

Her warning came after anecdotal evidence from Chris Bramham, director of mortgages and buy-to-let at specialist distributor Brightstar Financial, said between 5% and 7% of buy-to-let referrals to his firm were knocked back as “back door residential”.

He said: “We quite often see brokers put cases through us and straight away you can see that it’s a back door residential. It is a problem with affordability. When it looks like they can’t get a mortgage, they try to get a buy-to-let.”

Under the Mortgage Market Review rules that came in last year lenders cracked down considerably on affordability, taking a much stricter approach to assessing how a borrower spent their income and therefore what mortgage repayment they could afford.

But in buy-to-let affordability is measured on rental income not personal income, prompting some less scrupulous brokers to “game” the system.

Bramham said: “We might see 5% to 7% of applications in this category. The majority of buy-to-let lenders see it as one of their biggest areas of risk and they spend a lot of time trying to detect it.”

He added that there were some genuine circumstances where wealthy young adults living with parents wanted to get on the property ladder but don’t want to move home.

He added: “That is genuine. That’s fine. But what you do see is people who can’t produce accounts and want to do a buy-to-let.”

Colin Payne, director of Chapelgate Associates, said he didn’t believe it was as entrenched an issue among borrowers applying for a loan with a broker dealing with lenders directly.

He said: “I don’t think it’s as a big an issue as some people make out. It’s fraud, but there are genuinely people who want to buy a buy-to-let as a first-time buyer.

“In London for example first-time landlords are renting, paying £700-800 a week but they can’t afford the million pound house. They might buy a studio to get on the ladder and continue to rent themselves.”

And Rob Killeen, managing director of Capital Fortune, said identifying whether a buy-to-let application was an attempt to game lenders’ systems was down to brokers.

He added: “Brokers should listen to clients but also apply a little bit of common sense. Brokers are now re-educated and they are much more on the ball.

“If they look at a situation and it does not add up that case should not be going to a lender at all and if so there should be consequences for the broker.”

For more on buy-to-let fraud, regulation and the future of the market read this month’s roundtable sponsored by Aldermore in this month’s Mortgage Introducer – out next week.


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