Mortgage Strategy reported this week that the Chancellor has moved ahead with plans to grant the Financial Policy Committee additional powers to regulate the UK buy-to-let market.
With previous interventions in the residential market leading to restricted underwriting rules, enhanced checks on borrowers it’s not unrealistic to expect to see loan-to-value ratios and income requirements for landlords becoming more stringent if the FPC does intervene in the market.
In a worrying sign for landlords, the move has come ahead of a planned Treasury consultation on the matter. Policymakers have traditionally had a poor understanding of the unique needs of the buy-to-let market and investors which could easily lead to some undesirable outcomes for landlords. It’s not that long ago that tens of thousands of residential borrowers were stranded on high standard variable rates due to the credit crunch and increased regulation making it impossible for them to remortgage from their old rates.
Indeed the Intermediary Mortgage Lenders Association recently was reported by Mortgage Strategy to consider that full regulation of the buy-to-let market had now become “inevitable”. Vanessa Warwick, founder of Property Tribes, went further stating that it was her belief that the Government’s long term plans were to rid the sector of the majority of private buy-to-let landlords in their entirety.
There are, of course, positives to further regulation. Products will be easier for smaller landlords to understand and tenants will be further protected from over-extended landlords taking on more debt than they can sustain during rental gaps and economic downturns. However, it also ushers in a period of uncertainty for landlords, making aggressive expansion less appealing in the face of potential future costs and regulation eating into profit margins.
Some of those costs, inevitably, will be passed on to tenants as it will become simply impossible for property to be available at today’s rates if landlords costs are increased significantly. The Government would be wise to take their time to fully understand the market before making rash decisions based on misguided anti-landlord sentiment in some parts of the populace as they may get what they wish for, only to realise it means higher rent for good.
By Steve Brownlie