CML news & views

We welcome Treasury proposals to widen the scope of mortgage regulation, but do not believe that it should be extended to include buy-to-let lending.

Proposed regulation of buy-to-let is inappropriate because it does not address the key issue of advice on whether or not to invest in property. In our view, that is the main source of potential consumer detriment – not the decision to borrow to complete the transaction. If regulation were extended to buy-to-let, it would also capture what is essentially a range of commercial transactions.

Our response to the Treasury argues that risk in the buy-to-let sector – including the exposure of lenders to fraud – would be best addressed by prudential measures, rather than extending the conduct of business rules. Inappropriate regulation risks damaging the sector and could undermine wider government policy objectives by deterring investment in private rented accommodation.

Our response was submitted shortly after we published data showing a modest upturn in buy-to-let lending in the second half of 2009, following two years during which the sector shrank significantly.

The data showed growth in buy-to-let lending up for the second consecutive quarter, with 25,800 new loans, up from 23,700 in the preceding three months. But growth in the second half of the year came from a very low base, following seven consecutive quarters of decline.

In the year as a whole 93,500 loans were advanced, 58% fewer than in 2008 (222,700). Gross advances in the final three months of the year totalled £2.4 billion, up £300 million on the preceding quarter. Lending for the year totalled £8.5 billion, down from £27.2 billion in 2008.

Despite the welcome recent upturn in the sector, buy-to-let lending remains well below the level needed to fund the private rented sector. The wrong kind of regulatory intervention could damage government aspirations to provide more good-quality privately rented homes – and to widen the choice for people who either cannot afford home-ownership or do not quality for social housing.

Our response to the Treasury, however, welcomed proposals to extend regulation to cover second-charge lending and to ensure that borrowers are properly protected when books of mortgage loan are sold on from one firm to another.

On second-charge loans, our long-standing position is that all secured lending should be regulated by the Financial Services Authority. That would create a coherent, comprehensive framework, aligned with European regulation. 

We also agree with extending regulation to protect consumers when mortgage books are sold on – if the new owners have control over interest rates, charges, service levels and arrears management. But where power over these decisions has been delegated to another regulated organisation, there should be no “double” regulation.  It is also important to ensure that extending regulation does not create unintended problems for securitisation and covered bond transactions.