Bob Young, managing director of Capital Home Loans, doubts the FSA will resist regulating buy-to-let
There appears to be an increasing amount of coverage around buy-to-let at present, and one can’t help but hold the image of a sector slowly coming out of hibernation. This has been fuelled by recent improved lending figures from the CML for Q4 last year which seem to have surprised the wider community and, judging by some of the media comment, reminded many in the industry that buy-to-let continues to exist as a potential investment.
Coupled with this increased up-take of buy-to-let loans, and we must be acutely aware of the low base from which this has improved, we have also seen the number of products increasing, not forgetting arrears/repossession data for the sector which have kept it in the ‘industry eye’. The headlines from this range of data focused on the fall in buy-to-let arrears from 32,900 in Q4 2008 to 20,700 in Q4 2009. Repossessions equated to 0.46% of the total buy-to-let loan book with 5,700 taking place last year.
These particular figures are keenly digested by CHL given that it gives us a chance to benchmark our own performance against them. It is pleasing therefore to see a widening between our own arrears/repossession figures and those of the CML. The industry shows a figure of 3.37% of buy-to-let loans currently in arrears or in possession CHL’s were significantly better than this, indeed, we widened the gap by a further 9bps at the end of Q4 2009.
This is not the whole story though, especially when the CML has started to outline its figures based on ‘arrears amounts greater than 1.5% of the outstanding balance’ to give a more meaningful appraisal of the true picture. This is because the notion of simply looking at arrears greater than three months has been artificially affected by the reductions in interest rates, in effect making arrears look worse than they actually are. Using this new measure for the whole of the market (both buy-to-let and homeloan) gives a CML figure of 2.51%, compared with a CHL figure of 0.85%. There is still much work to be done however it is pleasing to see our arrears/repossessions continuing to go in the right direction.
Buy-to-let has also maintained a high profile in recent weeks because of the FSA’s Mortgage Market Review (MMR) and its own proposals to regulate the sector. In what was a co-ordinated display of public pronouncements, the CML and BSA both suggested that regulation of the sector would be misguided.
The CML has stressed that regulation of buy-to-let would not bring with it consumer protection suggesting that problems faced by amateur landlords are the fault of poor investment rather than anything to do with the mortgage. It fears regulation will stifle attempts to stimulate the private rental sector. The BSA takes the same viewpoint arguing the case that buy-to-let is an investment decision and very different to a residential mortgage. It points to the practical difficulties in subjecting buy-to-let borrowers to the same affordability and suitability assessments as residential borrowers and regards this as wholly inappropriate.
While one can agree with the overall case for keeping buy-to-let regulation outside of full FSA regulation, we must wonder whether the regulator will not look at this as an opportunity to ring-fence what it deems to be the entire ‘home finance’ market. It has, sometimes slowly in many cases, worked over the years since ‘Mortgage Day’ to fill any potential regulatory loop-holes such as home reversion plans and just recently sale and rent back. Buy-to-let has always been considered unique, however with the publication of the MMR the uniqueness argument seems to have lost out to what seems a more pressing need to circle the wagons around all sectors.
Now, with proposals to also regulate the second-charge sector, will the FSA feel comfortable leaving one sector outside its remit? I doubt it. It has been said before that regulators exist to regulate and therefore this particular argument may be lost because of the FSA’s need to be seen to be doing something. In the great scheme of things, this could possibly be a mistake as it could prevent a full-scale buy-to-let recovery and may well precipitate a much greater period of ‘bobbing along the bottom’.
In a wider sense, it could be argued that the mortgage market is one area which could do with a period of stability and further tampering may only lead to further uncertainty. In what appears to be a much more positive market than we have seen over the last 18 months do we really want to risk pushing the market two steps back when we appear to have taken one step forward? The industry seems to have its own view one must be very doubtful whether the FSA will hold the same one.