Tuesday, October 20, 2009
FSA Regulation of Mortgages. Landlords News by Letting Focus
I see the FSA is proposing changes to the regulation of mortgages that will probably ban self certificated (or so called, “self cert”) mortgages.
These are mortgages where the borrower is granted a mortgage without having to prove their income.
These types of mortgages always came with a higher interest rate and a higher loan to value requirement than would be the case on a standard residential mortgage.
Self cert mortgages have always been very useful for the self employed, who whilst their earnings might be OK, had not yet filed three years of accounts to make a would-be mortgage company happy enough to give them a mortgage.
Poor Mortgage Lending In the Past
As you will know from reading this column I think that the control of mortgage loans, especially on buy to let has been very poor over the last 10 to 15 years.
You will know that I am especially critical of the poor lending decisions made by lots of banks and building societies where they lent money to new and inexperienced landlords to buy duff new build identikit flats - many of which were hard sold by property clubs.
My contention was that it should have always been pretty obvious that the value of many of these flats would plummet as a result of oversupply.
And sure enough, plummet many of them did!
Blanket Ban on Self Certificated Mortgages is Wrong
The blanket banning on self certified mortgages will be, in my opinion, the wrong move.
There are lots of self employed people who earn well but cannot yet prove 3 years of income. (Yes, yes, I know, some of these are people who let’s say are less than straight about their earnings but that's a minority.)
A more sensible way forward would have been to have said that a self cert mortgage can only be granted where a borrower puts in at least 30% of the equity – i.e. the maximum loan to value is set to 70%. (Actually, in these post credit crunch times, that is pretty well what it is right now.)
That would at least have ensured that self cert mortgages were only being issued to people who are not “men and women of straw.”
Bad and Good for Landlords
One other proposal from the FSA is that buy to let mortgages could be regulated in the future in the same way as standard residential mortgages already are.
We don’t have all the detail yet so we will just have to see how this will work out.
But I do fear the FSA may be thinking that a minimum personal income requirement could be required for all buy to let loans in the future.
This would be bad for landlords of more limited means who may find themselves shut out of entering buy to let. That would be shame.
However, if the banning of self certificated mortgages means more self employed people are frozen out of getting a mortgage that could increase the demand for rented accommodation from that particualr group of people.
No one at Home at the FSA?
Last December I had dinner in Pizza Express in Canary Wharf and from their restaurant you can see right into the FSA’s offices.
It was 6pm and naturally all the lights were blazing away (which seems the norm in public sector buildings) but even at 6pm there was no one at home. Everyone had already left for the evening. Was there anyone at home when these proposals were put together?
Rather than increased regulation of buy to let mortgages the authorities would have achieved more by banning some of the more reckless property syndicates who hard sold lots of duff new build flats to inexperienced would be landlords.
Make Property Letting Sippable
As you know from other posts I don’t think much of the government’s idea to crack on with their “build to let” ideas.
“Build to Let “is the daft idea that the government has where they dole out juicy new tax breaks to city institutions and big property firms to encourage them to build and manage rabbit hutch blocks for tenants – think Identikit Flats Mark 2.
(The Rugg Review was pretty much against this not least because small landlords are doing very well, growing the sector fast and have largely happy tenants - but the government, it seems, can’t wait to get their big property pals in on the buy to let act so has ignored Rugg on this.)
Over a pie and a pint, a follower of mine, a Mr. Peter D, said the government should instead dust down their plans to allow people to invest in certain types of property via a tax efficient SIPP.
A very good idea Peter and if only us small landlords and our representatives could afford the canapes that the city institutions can provide, maybe the government would listen to us.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.
OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
Featured Article: We have recently updated this article on Local Housing Allowance and Housing Benefit: http://www.lettingfocus.com/pages/myarticles_Local_Housing_Allowance.html
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Copyright of Blog: David Lawrenson 2009. This blog is updated roughly once a week usually on a Monday or Tuesday.
If you have a website & are thinking of reproducing material here, that’s fine but we DO require a link to the blog to be included, including also all the links in this section. (The full article including all links must be available to ALL VIEWERS of your site and not restricted.)
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To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
These are mortgages where the borrower is granted a mortgage without having to prove their income.
These types of mortgages always came with a higher interest rate and a higher loan to value requirement than would be the case on a standard residential mortgage.
Self cert mortgages have always been very useful for the self employed, who whilst their earnings might be OK, had not yet filed three years of accounts to make a would-be mortgage company happy enough to give them a mortgage.
Poor Mortgage Lending In the Past
As you will know from reading this column I think that the control of mortgage loans, especially on buy to let has been very poor over the last 10 to 15 years.
You will know that I am especially critical of the poor lending decisions made by lots of banks and building societies where they lent money to new and inexperienced landlords to buy duff new build identikit flats - many of which were hard sold by property clubs.
My contention was that it should have always been pretty obvious that the value of many of these flats would plummet as a result of oversupply.
And sure enough, plummet many of them did!
Blanket Ban on Self Certificated Mortgages is Wrong
The blanket banning on self certified mortgages will be, in my opinion, the wrong move.
There are lots of self employed people who earn well but cannot yet prove 3 years of income. (Yes, yes, I know, some of these are people who let’s say are less than straight about their earnings but that's a minority.)
A more sensible way forward would have been to have said that a self cert mortgage can only be granted where a borrower puts in at least 30% of the equity – i.e. the maximum loan to value is set to 70%. (Actually, in these post credit crunch times, that is pretty well what it is right now.)
That would at least have ensured that self cert mortgages were only being issued to people who are not “men and women of straw.”
Bad and Good for Landlords
One other proposal from the FSA is that buy to let mortgages could be regulated in the future in the same way as standard residential mortgages already are.
We don’t have all the detail yet so we will just have to see how this will work out.
But I do fear the FSA may be thinking that a minimum personal income requirement could be required for all buy to let loans in the future.
This would be bad for landlords of more limited means who may find themselves shut out of entering buy to let. That would be shame.
However, if the banning of self certificated mortgages means more self employed people are frozen out of getting a mortgage that could increase the demand for rented accommodation from that particualr group of people.
No one at Home at the FSA?
Last December I had dinner in Pizza Express in Canary Wharf and from their restaurant you can see right into the FSA’s offices.
It was 6pm and naturally all the lights were blazing away (which seems the norm in public sector buildings) but even at 6pm there was no one at home. Everyone had already left for the evening. Was there anyone at home when these proposals were put together?
Rather than increased regulation of buy to let mortgages the authorities would have achieved more by banning some of the more reckless property syndicates who hard sold lots of duff new build flats to inexperienced would be landlords.
Make Property Letting Sippable
As you know from other posts I don’t think much of the government’s idea to crack on with their “build to let” ideas.
“Build to Let “is the daft idea that the government has where they dole out juicy new tax breaks to city institutions and big property firms to encourage them to build and manage rabbit hutch blocks for tenants – think Identikit Flats Mark 2.
(The Rugg Review was pretty much against this not least because small landlords are doing very well, growing the sector fast and have largely happy tenants - but the government, it seems, can’t wait to get their big property pals in on the buy to let act so has ignored Rugg on this.)
Over a pie and a pint, a follower of mine, a Mr. Peter D, said the government should instead dust down their plans to allow people to invest in certain types of property via a tax efficient SIPP.
A very good idea Peter and if only us small landlords and our representatives could afford the canapes that the city institutions can provide, maybe the government would listen to us.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.
OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
Featured Article: We have recently updated this article on Local Housing Allowance and Housing Benefit: http://www.lettingfocus.com/pages/myarticles_Local_Housing_Allowance.html
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?
Copyright of Blog: David Lawrenson 2009. This blog is updated roughly once a week usually on a Monday or Tuesday.
If you have a website & are thinking of reproducing material here, that’s fine but we DO require a link to the blog to be included, including also all the links in this section. (The full article including all links must be available to ALL VIEWERS of your site and not restricted.)
WANT TO ADD A COMMENT OR VIEW OLD COMMENTS?
To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
Labels: build to let, buy to let mortgage regulation, FSA and mortgages, FSA regulation, Rugg Review, Sipp, Sippable
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