The FSA believes there is an increasing risk of buy-to-let mortgages being used fraudulently by borrowers and mortgage intermediaries to get around tougher affordability checks required for residential mortgages.
The regulator published its retail conduct risk outlook yesterday, which sets out what the FSA sees as the most significant risks in the retail investment market over the next year to 18 months.
The buy-to-let market is currently unregulated. The FSA has said previously it sees the benefits in regulating the sector, but the Government is yet to make a decision on this.
In the risk outlook the FSA says: “We are seeing anecdotal evidence of unregulated buy-to-let mortgages being used fraudulently as a replacement for regulated mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks. These instances of misconduct could increase.”
The regulator says this is likely in light of tighter controls around self-cert mortgages.
It adds: “The pressure to achieve greater margins on overall lending, given the current low returns available, and increasing competition in the buy-to-let market, might encourage firms to engage in this type of behaviour.”