Buy-to-let investment regulation
The British Property Federation (BPF) is today calling on the Government to regulate buy-to-let investment syndicates, and for lenders to put in place other measures to protect small investors.
Having met with the Council of Mortgage Lenders and more recently HM Treasury to discuss this issue, the BPF is convinced that the existing arrangements for the DTI to close down the worst syndicates is insufficient to protect consumers and the reputation of the wider property investment sector.
The BPF is therefore advocating that the Financial Services Authority (FSA) takes a more proactive approach to regulating such syndicates.
Ian Fletcher, Director of Residential Policy at the BPF, explains:
"A simple internet search illustrates the phenomenal growth in the number of these syndicates. Picking off the worst on a one-by-one basis is a losing battle, which only protects those investors that have not already invested funds, and only affects those syndicates that have been formed as companies and not other structures.
Consumers, who are primarily small investors, could be protected far better simply by getting the FSA to enforce existing rules on Collective Investment Schemes."
In current slower market conditions the BPF is also concerned with the lending criteria of some buy-to-let mortgage lenders. The Federation is therefore calling for the buy-to-let mortgage sector to self-regulate a minimum rent-to-interest cover of 130 per cent.
Fletcher explains:
"During the phenomenal growth in the buy-to-let sector the vast majority of lenders have followed the prudent policy of not lending at ratios below 130 per cent gross rent to interest cover. Recently, however, we have seen ratios as low as parity being offered by some lenders in the national press, this at a time when market conditions are less favourable. We do not consider it prudent to be lending at levels which only cover lenders' interest payments and leave nothing for when the property is vacant, for repair and maintenance, or letting agents' fees. That is bad for the borrower and bad for the sector.
The FSA has recently taken responsibility for regulating domestic mortgages. It seems unusual that buy-to-let mortgages are not also covered. We would normally prefer to see the sector self-regulate, but if it does not, it will only require secondary legislation to bring buy-to-let mortgages within the FSA's control."
Fletcher concludes by stressing:
"The BPF's membership has an interest in an orderly and disciplined market where property investment purchases are made by well-informed and properly funded investors. The responsible players in the buy-to-let sector abide by this and have provided many small investors with a good long-term investment opportunity. However, the activities of some buy-to-let investment syndicates out to make speculative gains, in combination with some inappropriate lending policies, broaden the scope for misselling and ultimately scandal. Our proposals are easy to implement and we believe necessary to protect consumers and the reputation of the sector."
Source: Politics.co.uk
Date: 25.05.05
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