Defining types of borrowers in the mortgage market can be a tricky job, especially from a regulatory perspective, when the nature of society, demographics and working arrangements can be so changeable.
Part of the issue we might all find as industry stakeholders and practitioners is that there is always a degree of ‘catching up’ to be done in this market – whether that be regulators or lenders or indeed advisers – in terms of developing rules, products and advice solutions that are up to speed with these changes.
You’ll recall a few years back a major regulatory debate around what constituted an ‘accidental landlord’ because of the need for regulation in this area. This was a tricky call, because many believed that buy-to-let of any kind wasn’t really something you could fall into by ‘accident’.
However, ‘accidental’ landlords were eventually defined as those individuals who were essentially acting out of circumstance, rather than choice. For instance, they might not be able to sell their property, so instead have to rent it out – in these cases, they are deemed not to be acting predominantly in a business purpose and therefore buy-to-let mortgages for these borrowers are regulated by HM Treasury and we define them at the Mansfield as ‘Consumer Buy-to-Let’ for which we offer a number of products.
Indeed, following last year’s Budget, ‘accidental landlords’ were back in the news because the Chancellor signaled an intention to abolish ‘letting relief’ which is currently claimed by those who have moved out of their family homes and let it out in order to reduce their Capital Gains Tax bill. Currently, it can be claimed for the last 18 months of ownership but in the future it will only apply to those who are living in the home with a tenant for nine months.
As can be seen, there are continuous shifting sands when it comes to the private rental/buy-to-let sector(s) and it makes sense for advisers to be on top of these changes.
Inevitably, the major focus in the buy-to-let market tends to be on the majority, unregulated area, where we have landlords operating purely in a business capacity. This does not tell the whole story however, and advisers should also be aware of other buy-to-let niches which are regulated by the FCA, because the likelihood is that at some point you will see a case which fits this brief.
For example, we also operate in ‘Family buy-to-let’ – which is also firmly in the regulated space – and covers cases where a property is being let out to a close relative. This is defined as a spouse/civil partner, children, parents, brothers and sisters, but it also covers cases where the property is currently let out but the borrower intends to occupy the property at a future date. Again, from that perspective, it’s important that advisers should determine if the borrower does have that intention in the future, and therefore whether the case should be a regulated one.
In fact, more and more buy-to-let lending is falling into specialist areas, whether it’s through regulation or by landlords exploring alternative investment opportunities, such as holiday lets or property refurbishment.
Lenders like The Mansfield are able to provide information on where a case might fit and offer the expertise and flexibility for the most suitable solution.
Getting on the wrong side of the regulations is never a good idea, especially when there are lenders and products available which will fit the client brief and can help ensure the client gets the right option.
Paul Lewis is national development manager at the Mansfield Building Society