Regulatory B2L change is inevitable
Bob Hunt is chief executive of Paradigm Mortgage Services
The future of the buy-to-let market, particularly in a regulatory capacity, is a constant source of debate, perhaps understandably so when we see the continued growth in buy-to-let lending over the past couple of years and also given the fact that it is predominantly an unregulated activity.
Many have questioned how long buy-to-let will continue to stay outside the auspices of regulation and, perhaps somewhat perversely given the soon-to-be introduced European Mortgage Credit Directive (MCD), my own view is that its current ‘unregulated’ status will stay the same for some time to come.
Now this might sound odd given the fact that regulation of certain types of buy-to-let activity is just over a year away, but in terms of implementing the MCD the Treasury (and FCA) have clearly signaled they are happy for ‘business BTL’ to remain unregulated. The same cannot be said for ‘consumer BTL’ and, as I’m sure you already know, this will become a regulated activity from the 21st March 2016.
Again, much discussion has gone into what actually constitutes ‘consumer BTL’ particularly when it seems to be made up of ‘accidental landlords’. ‘How can a landlord be accidental’, went up the cries.
In its consultation paper CP15/3 the regulator sought to address the definition and we now can define ‘accidental’ as a landlord who is not renting out a property for business purposes.
This takes in, for example, those who are rent-to-buy borrowers or those who have inherited property and want to rent it out with no previous experience of the rental market.
I have to say that, even with this further analysis, this could remain something of a grey area, especially when you consider that buy-to-let applicants will be able to state themselves that the transaction is wholly for business purposes. One hates to use the phrase, self-certification, but this is essentially what will be acceptable and one wonders just how the regulator will go about policing this particularly perimeter when it takes full control of this area.
However, at least we now know what is coming next year, and there are obviously implications for all lenders, brokers and borrowers operating in this ‘consumer BTL’ space.
For a start, from September this year DA firms will be able to register to carry out this type of business with a £100 registration fee to pay; on an ongoing basis it is anticipated that firms will have to pay a yearly flat fee of around £250 to retain their authorisation in this area. This is good news in a sense as the ongoing fee is not activity-based.
In terms of the regulatory redress that will come with ‘consumer BTL’ this will be the same as for other regulated business. Therefore it will be covered by FOS and subject to the FSCS, and not forgetting that it will be the FCA who will be supervising firms in this area, collecting data, policing the market and generally ensuring the rules are being enforced.
More regulation is not always ideal however in this case it appears that we have been presented with a solution which brings in the bare minimum possible. As we know, the MMR delivered some sizeable changes, many in anticipation of the MCD it has to be said, which has allowed the Treasury and FCA to take a more toned-down approach when it comes to the overall Directive. For instance, while the KFI will eventually be replaced by the ESIS form, authorised firms have up until 2019 to fully convert. Again, this type of gradual approach will certainly be helpful and will save firms some money in terms of implementation.
Overall I suspect we have the best we can hope for with the MCD’s implementation. It’s a simple fact that regulation costs money and clearly firms are going to be expected to stump up again but, and this is a major but, I can’t help feel that we now have a regulatory approach much more sympathetic to practitioners.
It’s not just a case of implement to the letter and damn the consequences and cost, now we appear to be much more forward-looking and in line with the industry that’s being regulated.
Let’s hope this can continue especially as future regulatory change seems as inevitable as those other two certainties, death and taxes.