BTL lenders agree to tighter self-regulation

More than 90% of mortgage lenders have pledged to make the smallprint on their buy-to-let loans easier to understand.

In a bid to stave off tighter EU regulations, 31 UK-based BTL lenders have agreed a Statement of Practice aimed at demonstrating the industry’s capacity for responsible lending.

The move – which is backed by trade bodies the Residential Landlords Association, the Association of Residential Letting Agents, the Association of Mortgage Intermediaries, the Intermediary Mortgage Lenders Association and the British Bankers Association – aims to make the rules governing BTL products more transparent.

The lending principles set out in the statement cover customer responsibilities, information given to customers and lender responsibilities on affordability, handling financial difficulty, fraud prevention and complaint handling.

Changes to the regulation of BTL lending are due to come into force in March 2016 when the Financial Conduct Authority establishes a Consumer Buy-to-Let Lending Framework to comply with the EU Mortgage Credit Directive.

This will see BTL lending fall under one of three categories:

  • Mortgages regulated by the FCA like residential mortgages. These include when the property is either partly occupied by the borrower or let to an immediate family member
  • Mortgages not regulated by the FCA. These include loans that are predominantly for a business purpose.
  • Consumer BTL mortgages regulated by the FCA under the Mortgage Credit Directive Order 2015.

In January, the government issued a clarification of consumer BTL regulation, which will cover about 11% of BTL lending for the first time in March 2016. However, exemptions include:

  • If a BTL loan is made on a property that has been bought for business purposes and for the sole purpose of letting it out
  • If the borrower has never lived in the property and has a portfolio of other BTL investments.
  • If the borrower signs a declaration saying they are acting wholly for business purposes and the provider has no reason to think this is incorrect.
  • If the property is predominantly a business, such as a secured loan on a bed and breakfast business.

The new Statement of Practice applies to all new BTL lending, except loans covered by other FCA rules.

Figures released by the Council of Mortgage Lenders reveal the number of BTL deals approved came close to eclipsing the number of first-time buyer loans issued in January.

The CML also revealed that there were more than 1.6 million BTL mortgages outstanding at the end of 2014, compared with 576,700 a decade earlier.

And lenders expect demand for BTL investments to grow after rules granting over 55-year-olds new freedoms to spend their pension savings came into force this week.

Last month CML chief Paul Smee announced the formation of a taskforce to study borrowing into retirement.

“Len­ders know how important it is to have a transparent mortgage market, in which borrowers can have confidence, and where lending policy is both responsible and clearly understood,” he said.