Consumer Duty | Buy to Let Reveals Gap in Lending Education

Consumer Duty

Consumer Duty

 

Liz Syms
Liz Syms, CEO and Founder of Connect

The question of whether buy-to-let mortgages are regulated has long been debated. Recently, Liz Syms, CEO of Connect for Intermediaries, addressed this matter while contributing to the buy-to-let section of the new Certificate Practitioner in Specialist Property Finance (CPSP). This qualification was developed by collaborating with the Financial Intermediary and Broker Association (FIBA) and the London Institute of Banking and Finance (LIBF).

Exploring Regulation in Buy-to-Let Mortgages

Buy-to-let mortgages occupy a unique position in the UK mortgage market. Unlike residential mortgages, which are subject to strict regulation, buy-to-let products often fall outside the Financial Conduct Authority (FCA) scope. However, this depends on whether the mortgage is considered a “consumer” or “business” transaction. Understanding these distinctions is crucial for intermediaries who guide this sector.

The development of the CPSP highlights the importance of regulatory awareness for mortgage advisers. The qualification aims to deepen the expertise of professionals in specialist property finance, focusing on equipping practitioners with the knowledge to navigate regulatory complexities effectively. By addressing these nuances, the CPSP ensures advisers are better prepared to handle compliance and provide accurate advice.

The Role of Consumer Duty in Buy-to-Let Advice

Consumer Duty has also become a central consideration in the buy-to-let mortgage process. While most buy-to-let transactions are not regulated, advisers must still operate transparently. This includes ensuring that clients fully understand the terms of their mortgage agreements. Moreover, maintaining high ethical standards is essential to building trust and fostering long-term client relationships.

In conclusion, the regulatory framework surrounding buy-to-let mortgages remains complex but vital. For advisers, staying informed about the latest developments is critical to providing accurate advice and safeguarding client interests. Through qualifications like the CPSP, professionals can develop the skills needed to thrive in this specialised sector.

Consumer Duty | The answer is, well, it depends. 

There exist three distinct categories of buy-to-let loans, each catering to specific circumstances:

  1. Consumer buy-to-let:
    • This pertains to individuals who, by chance, find themselves renting out a property they once inhabited or inherited. These scenarios fall under the regulatory framework known as ‘Consumer buy-to-let,’ a specialized category designated by the Financial Conduct Authority (FCA). It is imperative to note that advising clients in this category requires a specific selection of permissions with the FCA.
  2. Family Buy-to-Let:
    • In this scenario, a significant aspect involves an immediate family member occupying 40% or more of the buy-to-let property. For instance, parents may acquire a property and choose to have their son or daughter as the tenant. This form of buy-to-let falls under the comprehensive regulation of the FCA’s Mortgage Conduct of Business (MCOB) rules. Professionals dealing with such transactions must possess mortgage qualifications and regulatory status for residential mortgages.
  3. Business-Buy-to-Let:
    • Constituting most buy-to-let transactions, business buy-to-let treats the property rental as a business activity, exempting it from FCA regulation. Notably, there was a brief period of partial regulation during the transition from the FCA’s Consumer Credit Regulation in 2014 to the enactment of the Mortgage Credit Directive in 2016. However, after this transitional phase, business buy-to-let was officially excluded from regulatory oversight. It’s crucial for individuals engaged in these transactions to remain informed about the evolving regulatory landscape in the financial domain.

Therefore, complaints about any business buy-to-let sales between these dates could still be reviewed by the Financial Ombudsman. 

Consumer Duty | Why it’s Significant

Understanding the significance of this matter is crucial as we approach Consumer Duty. The FCA has made it clear that advising on regulated and non-regulated products simultaneously without applying the rules uniformly would contradict the principles of Consumer Duty.

For those working as fully regulated mortgage advisers focusing on residential mortgages, maintaining consistent advisory standards for residential and buy-to-let mortgages may not pose a challenge.

However, it’s important to note that FCA regulation is not mandatory for advisers specialising in business buy-to-let. Nevertheless, many lenders may reject business from advisers not affiliated with a regulated company.

Some buy-to-let lenders, such as CeMap, require advisers to hold specific mortgage qualifications. Despite this, CeMap may not adequately equip advisers for the intricacies of the buy-to-let market, including aspects like houses in multiple occupation (HMO) legislation, limited company lending, rental affordability, and buy-to-let tax, which are not covered in the CeMap qualification.

This is where the significance of the new CPSP qualification comes into play. While business buy-to-let remains outside the realm of regulation, this program offers regulated and non-regulated advisers a comprehensive understanding of the complexities involved, ensuring they can provide informed advice to customers seeking buy-to-let mortgages.

The CPSP qualification goes beyond traditional certifications, addressing critical aspects often overlooked by existing qualifications. Embracing this qualification is essential for effectively navigating the nuanced landscape of buy-to-let advising.

We’ve reached the end of our post on “Consumer Duty.” Stay “Connect” until next time!

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