Is the Treasury wrong to leave buy to let out of FSA mortgage regulation?
Davies No. Buy-to-let mortgages are quite clearly a commercial proposition and should be treated as such. What tends to muddy the thinking is the fact that a buy-to-let borrower is purchasing a home, albeit a property intended to be someone else's home to the profit of the landlord rather than, say, a small office building.
Another factor here has been the recent tendency for small investors to move into buy to let because of the low return on more traditional investments without necessarily being aware of the risks or having the business acumen to be property managers.
However, this does not change the commercial basis of the deal. As buy-to-let lenders, we want performing loans on our books rather than repossessions. As a commercial undertaking, we can regulate commercial propositions simply by applying sound business judgement.
Let the regulator concentrate on the consumer who could lose the roof over their head from taking on the wrong loan deal.
Cherry SPML has always believed that buy-to-let mortgages should be regulated to bring them into line with residential mortgages. There are more similarities between an individual buying a residential property to let it out and a person buying a residential property to live in than a company buying a factory or an office.
More and more individuals are buying the odd one or two buy-to-let properties, rapidly diminishing the argument about regarding buy to let as purely professional.
Jenks One of the reasons for statutory regulation was to improve protection for borrowers whose homes are at risk when they take out a mortgage. The promotion, sale and processing of mortgages are all being addressed. The same concerns do not apply to the professional buy-tolet market.
Our view is that the regulations have been drafted appropriately. I can understand some of the concerns being raised around the amateur investor, however, it would have been difficult to draft regulations which provided protection to these individuals without affecting the overall market.
Recent Imla analysis found that 47,000 of a total 80,000 mortgage advisers are still unqualified with only three months until the MCCB deadline – do you think the majority will manage to qualify and what will the impact on the market be if a large number do not?
Davies Our local further education college has reported a significant increase in enrolments for the autumn Cemap course, which does rather suggest a last-minute scramble for the qualification.
However, the most popular course is the Cemap bridge paper or the Mortgage Adviser Qualification, which suggests that many of the 47,000 advisers left already have FPC and need the fourth paper only to top up their qualification to the MCCB's requirements. The majority of the advisers will make the deadline, particularly the single paper candidates, but a significant number of advisers will, at the last moment, drop down a level of service to the giving of information only.
Cherry There is a general acceptance that the industry will lose a number of brokers as a result of the impending qualification deadline. In particular, brokers that only conduct a small amount of mortgage business might conclude that it is not worth the effort at this stage.
This assertion was backed by the findings of a SPML survey earlier this year. It found that over a third of packagers and brokers questioned believed that the broker market would be reduced by around 30 per cent.
Jenks There is a significant amount of activity as we speak, with advisers still registering. I understand there has been a real growth in registrations for the bridge paper and the electronic examinations will offer a good opportunity to beat the deadline.
I would expect many advisers to be able to qualify but inevitably there will be a number who will not and they will need to work with qualified advisers and lenders to ensure that advice is provided by suitably qualified practitioners.
In its mortgage comparative tables going live in October, should the FSA include a table dedicated to offset and current account mortgages, as Virgin One is calling for, to save consumer confusion?
Davies If offset and current account mortgages have their own table, how is the consumer carrying out a general search of the comparative tables to decide whether or not one would suit their needs?
I would much rather see a comprehensive table which then allows the consumer to discard the products they are not interested in by checking out their features as well as the interest rate.
Cherry We are all in favour of clarity and the provision of clear information for all borrowers. Offset and Cam mortgages are a legitimate and increasingly popular type of mortgage and, as such, should be considered for the comparative tables. At the heart of the tables should lie the consumer's ability to truly compare product with product and the more complicated nature of these types of mortgages will present a challenge.
Jenks The difficulty with segmenting the comparative tables to isolate offset and chequebook mortgages is that other lenders will inevitably look to seek additional segmentation for flexible mortgages and other combination accounts.
One of the weaknesses with the tables is that they inevitably create a focus on rate rather than other product characteristics which add value to the consumer.
On balance I do not see a real problem in current account mortgages being included as advisers will help their clients understand the comparative benefits and help select the appropriate mortgage.
Mike Davies, compliance manager risk and analysis, Bristol & West Bill Cherry, managing director, SPML
Phil Jenks, head of mortgages, HBOS