The Financial Services Authority has claimed that buy-to-let mortgages are being procured by mortgage brokers for ordinary residential buyers who would not pass the more stringent checking procedures required for ordinary residential mortgages.
Ordinary residential mortgages are regulated by the FSA but buy-to-let mortgages are not.
Writing in the current FSA newsletter, David Geale, manager of the retail intermediaries and mortgage sector, queries whether buy-to-let mortgages have become ‘the new self-cert’ - the so-called 'liar loans' that were popular at the height of the housing boom.
Although he gives little explanation, and does not say what action the FSA has taken, he says: “We are aware that some BTL and let-to-buy mortgage products are being used by intermediaries to circumvent the more stringent income and affordability checks now undertaken on residential regulated mortgages.
“Lenders offering BTL and let-to-buy products need to ensure that their systems and controls cannot be ‘gamed’ by intermediaries.
“This is particularly the case where lenders are offering BTL products to first-time buyers and where the affordability test is based on projected rental income only.
“The same applies to let-to-buy mortgages.
“We believe that lenders with weak systems and controls are more likely to be exploited by intermediaries still looking for ‘self-certification’ mortgages.”
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Comments
Another 'unintended' consequence for those FTBs who are desperate to get on the housing ladder but unable to do so with normal mortgage even though they have the ability to service the mortgage - making it even more precarious for FTBs who are forced to pay a much higher cost - I would say, totally unnecessarily.
Yes But at what cost. Very high set up fees and high interest rates of 7%+ are encouraging those that cannot really afford a mortgage to over stretch themselves. When interest rates rise, as they will, these are the first people to get into debt.