David Prosser: Time to start regulating buy-to-let

Outlook: Unless there is better supervision, bad practices will return as the next housing bubble builds
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The Independent Online

An odd announcement from the usually sensible Council of Mortgage Lenders yesterday: it wants the Government to reject the near-universal calls for regulation of the buy-to-let mortgage market. The CML argues that these loans are commercial arrangements and regulation would inhibit what is, in essence, an investment business mostly engaged in by professionals.

Nonsense. We need to tread carefully with regulation (these landlords are a vital source of rental accommodation) but as the only part of the mortgage industry not to be explicitly policed by the Financial Services Authority, buy-to-let stands out like a sore thumb.

The omission of buy-to-let from the mortgage regulation introduced five years ago caused real problems. You will note, for example, that at lenders such as Bradford & Bingley, Northern Rock and HBOS, default rates on these loans are much higher than on conventional advances. This part of the mortgage business has also been a magnet for fraudsters.

Don't think buy-to-let investors are opposed to regulation, either. The British Property Federation, a body that speaks for many landlords, has long campaigned for a crackdown and says it told the Treasury and the FSA about dubious practices in the sector as early as 2005.

For now, the worst of the practices seen prior to the housing market crash have stopped. Some of the buy-to-let specialists have withdrawn from the market. But unless there is better supervision, they will return as the next housing bubble builds.

Lenders and advisers already have to accept FSA supervision on every other part of their industry, so making buy-to-let a regulated product should not add to the compliance burden. Let's get on with it.

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