Standing together

Phil Rickards

April 30, 2015

Phil Rickards is head of BM Solutions

BM Solutions has enjoyed a positive start to the year in terms of buy-to-let lending and this is mirrored across the market according to figures from the Council of Mortgage Lenders. As such it’s no surprise to see that the private rental sector is very much in the news.

Its performance has even attracted the attention of the Bank of England’s Financial Policy Committee (FPC). The remit of the FPC is to protect and enhance the resilience of the UK financial system, and I find the minutes from its monthly meetings always make interesting reading. The most recent of these reported that while household indebtedness remains high the risks stemming from this and from the UK housing market had not increased, which is good news for the industry.

But on top of this the minutes also noted the increasing share of interest only mortgages in buy-to-let mortgage lending and has “agreed to continue to monitor developments closely”. This grabbed my attention for a number of reasons. Now I think that oversight and regulation are very important; the private rental sector makes a very important contribution UK PLC, and oversight prevents misuse which can help to generate the confidence that enables the industry to maximise its potential.

I think it’s important to explain how interest only mortgages are used in the context of buy to let. Affordability is a key part of buy to let lending criteria, but interest only mortgages in buy to let is not by itself an indication of misuse. Interest only mortgages are extremely common in buy-to-let and always have been. They can be an extremely valuable tool for landlords with a number of properties as they provide a degree of flexibility in order to minimise the impact of arrears and void periods. However, for those investors looking to remain mortgage free at the end of the term, there is clearly another choice.

With the majority (around three quarters according to independent research) of landlords are in it for the ‘longer term’ however and with little intention of selling unless they no longer need the property, interest only is not necessarily an example of potential misuse where borrowers are trying to circumvent residential lending rules.

The industry as a whole needs to continue to demonstrate what is being done to monitor buy-to-let as it is something that is very much at the forefront of our thinking.

Only this month, we’ve had the Council of Mortgages statement of practice published, which is designed to provide clarity about how responsible buy-to-let lenders operate. It sets out over-arching principles used in relation to things like lending principles, lenders responsibilities on affordability and fraud prevention. As an indication of the high level of lender commitment to this almost everyone involved in the market has agreed to be on board at launch.

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