For many years there has been the perception that buy to let [“BTL”] mortgages are not regulated. They are not covered by MCOB and are not regulated I hear you cry – and, of course, you are technically correct. However, those who provide, arrange and sell BTL mortgages are regulated and regulators have always influenced the way regulated entities deal with financial products even if the product itself is not strictly regulated. For example, John Tiner, the then Managing Director of the Financial Services Authority, did not refrain from warning lenders about BTL lending when he made a speech on 4 December 2001 at a Council of Mortgage Lenders conference. His speech was titled “FSA points out opportunities and risks in buy to let market”. In it he said “We would not wish to see, for example, a relaxation of loan to value or rental cover without lenders first making a clear analysis of the risks”. Furthermore, the Financial Conduct Authority [“FCA”] recently confirmed that it will consider taking “regulatory measures” in respect of commercial lending even though it is not a regulated activity under the Financial Services and Markets Act.
But a particular type of BTL, product is about to become directly regulated. I refer to the Consumer Buy to Let [“CBLT”]. The CBLT has come to the front regulatory thinking because of the European Mortgage Credit Directive [“MCD”] requires EU member states to develop a ‘national framework’ for BTL lending even if they choose to exercise discretion afforded by the MCD to not apply the MCD to their BTL mortgage markets. Accordingly, the FCA has issued a policy statement with the snappy title “PS15/11, Buy-to-let mortgages – implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules.” The policy statement affects lenders, administrators, intermediaries and consumers in the buy-to-let mortgage market. Article 4 of the Mortgage Credit Directive Order states a CBLT contract is a buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower, so not every individual applying for a buy to let mortgage will be defined as a consumer under the legislation. Clearly firms must satisfy themselves whether a customer is a consumer or acting for the purposes of business based on facts specific to each case and, therefore, they need to establish procedures and rules to correctly identify the type of customer they dealing with.
Although the new CBLT requirements do not come into effect until 21 March 2016 firms need to put CBLT high on their planning agenda now
Although the new CBLT requirements do not come into effect until 21 March 2016 firms need to put CBLT high on their planning agenda now. Firms need to understand the changes that are about to be made in four key areas; registration, aggregated data reporting, complaint handling rules and modifications to other handbook modules to incorporate CBTL. The first step is that firms wishing to lend, administer, intermediate, arrange or provide advisory services in relation to CBTL from 21 March 2016 will need to be registered by the FCA to do so. The FCA aims to start accepting applications later this summer. To give firms enough time to plan their applications the FCA have published a specimen application form alongside PS15/11. This should be reviewed as soon as possible as all firms must do this irrespective of permissions already held with the FCA. Although CBTL is not likely to require huge changes it is important that firms do not end up carrying out unauthorised activities through apathy or lack of knowledge.
