Should the Treasury Regulate the Buy-to-Let Market to Protect Landlords?

To date, the FSA or Financial Services Authority does not regulate lenders in regard to buy-to-let mortgages. Although they have considered doing so in the past, they have not yet done so. Therefore, no regulations exist to promote consistency in standards or systems with buy-to-let mortgage products.

Is this fair to the buy-to-let investors who have just as much right as other borrowers to expect some sort of protection by way of regulated products in the lending industry? Shouldn’t they be afforded the same comfort zone as other borrowers? Aren’t they entitled to rest assured that the mortgage products they are being offered are standardized regulated products with no fuzzy areas attached to them?

One would think that obviously landlords or buy-to-let investors deserve the same treatment as other borrowers. However, until the FSA regulates the buy-to-let market, they can expect none. Currently, lenders are required to follow guidelines in regard to other areas of lending. Other borrowers can relax in the knowledge that restrictions and guidelines provided by the FSA promote consistency and protection across lenders.

However, knowing that the buy-to-let investors comprise a large percentage of the customer base of lenders, one would thing that this area of mortgages should also be regulated by the FSA. Should the FSA place principle-based regulations upon buy-to-let mortgages and the lenders who offer them? If they do implement such guidelines, will they be imposed upon all lenders, lenders who solely offer buy-to-let mortgages, or lenders who offer all types of mortgages?

Despite Base Rate Cuts Lenders Continue to Modify or Eliminate Buy-to-Let Mortgage Products

Interest rates might be coming down in some areas of the mortgage market, but in many instances, the buy-to-let mortgage area is not one of them by any means whatsoever. Despite the fact that the base rate has experienced cuts, lenders feel inclined to either eliminate buy-to-let mortgage products entirely from their line of offerings, delay the availability of buy-to-let mortgages, or to increase the interest rate attached to them entirely.

One of the reasons behind the withdrawal of buy-to-let mortgage products is simply the fact that lenders have a limited supply of funds allotted to these. Once the funds dry up, the mortgages can no longer be offered to potential buy-to-let investors. Unfortunately, the decline in the number of buy-to-let products being offered by lenders places a strong demand of such products on the lenders who continue to offer them, effectively drying up their supply of affordable buy-to-let mortgages.

Hence, some lenders are raising the interest rates on some buy-to-let mortgages in regard to some of their offerings, while others are taking their buy-to-let mortgage offerings off the market either permanently or temporarily. Either way buy-to-let borrowers look at it, the drop in the base rate hasn’t done them much good with regard to specific lenders. This is not to say that some lenders who specialize in buy-to-let products might not be offering affordable mortgages to its buy-to-let investors. Obviously, there are still lenders out there who have money to loan at reasonable rates. The trick is to locate them.

Should the Buy-to-Let Investor Purchase New or Older Properties?

Once an investor makes the decision to purchase a property for the sole purpose of letting it, he needs to make a decision as to whether he will buy a new property or an older one. Are there any advantages in buying one over the other?

Obvious advantages include the fact that newer properties will probably not need any repairs or major decorating improvements. This should save the buy-to-let investor time and money, which in and of itself is a terrific draw for purchasing a newer property.

Is the fact that the property is new an advantage? Will the landlord be able to rent it out that much sooner simply because it shows prettier than an older property? Perhaps and perhaps not. After all, one must consider the obvious fact that one of the greatest draws for rental properties is location, location, and location. Therefore, whether a property is newer or older might be entirely irrelevant when it comes to letting.

Nonetheless, a distinct disadvantage to buying a new property over an older one for buy-to-let purposes involves the difficulty of finding an affordable mortgage to finance the purchase. In fact, lenders often differentiate the manner in which they provide buy-to-let mortgages among new and older properties with the newer properties coming out on the short end of the stick.

In fact, more frequently, lenders are requiring a higher deposit on buy-to-let mortgages that are being used to finance a new property. Rather than offering the same ratio that borrowers will find on buy-to-let mortgages for older properties, some lenders are now requiring a 50% deposit for mortgages that are going to be used to finance a new buy-to-let property.

The Intricacies of the Buy-to-Let Investment Market

With scores of buy-to-let mortgages disappearing from the market, interest rates rising on buy-to-let mortgages instead of dropping, and fees getting tacked onto standard buy-to-let mortgages, the buy-to-let investor already has enough to think about. Unfortunately, he also has to take into consideration where to make his purchase, what type of purchase to make, and how much can he actually afford to borrow.

Plus, he now has to worry about which lender is going to offer him the best deal or one that he can actually afford to invest in, not to mention whether or not a buy-to-let mortgage is even going to be available this month. On top of that, he also needs to worry about how much of a deposit he is going to have to place on the property in order to qualify for the loan.

The days of 90 per cent loan to value ratios for buy-to-let mortgages have long since passed us by. Yet many lenders are still willing to provide buy-to-let mortgages at 85 per cent loan to value ratios when it comes to older properties.

However, the rumour mill has it that the days of the 85 per cent loan to value mortgages are numbered no matter which way you look at it. With so many lenders pulling out of the buy-to-let mortgage arena, other lenders are finding themselves hard pressed to provide a sufficient number of offerings to potential buy-to-let investors. The repercussions of the credit crunch continue to reverberate in many areas.

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