When is a mortgage not a mortgage?


November 18, 2014

John Phillips is financial services director at Kinleigh Folkard & Hayward


The simple answer to that is when it’s a pension.

In my last piece I highlighted how the blow dealt to the annuity business will effectively ensure the regulation of buy-to-let which is being used by so many as a pension mechanism. While this is not new in terms of commercial property and SIPP wrappers, run of the mill buy-to-let has always been treated as a straight forward investment and has remained unregulated.

But as buy-to-let transactions continue to increase as a percentage of the market and the volume of one property landlords (nearly 50%) grows, the case for regulation will become irresistible.

A debt driven investment product that provides an income for old age is a pension but we are in danger of tying ourselves up in knots if we don’t deal with the consumer ramifications of this.

What we have is the result of product regulation rather than holistic advice regulation. By treating debt products and investment products as different animals and subsequently regulating them differently, the asset class (property) that can work for both product types is caught in the middle.

How long will it be until an under-performing investment property becomes the focus of litigation because it failed to provide what was expected as part of a pension asset? A test case would be interesting.

Mortgage brokers are in an invidious position.

Are they really expected to assess pension contributions correctly so they can make a judgement about a mortgage?

Equally if that mortgage increasingly features buy-to-let as the vehicle for funding senior years, should that be treated as a pension investment?

Buy-to-let increasingly needs regulatory clarity for the sake of all concerned so there is no misunderstanding of the expectations of what the investor’s property is providing in the future.



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