Consumer Duty
Is the sale or advice of a buy-to-let mortgage regulated? This question was posed when Liz Syms, CEO of Connect for Intermediaries, was recently involved in writing the buy-to-let topic for the new Certificate Practitioner in Specialist Property Finance (CPSP) qualification with the Financial Intermediary and Broker Association (FIBA) and the London Institute of Banking and Finance (LIBF).
Exploring the intricacies of buy-to-let mortgages, especially within the framework of regulatory measures, became a pivotal aspect of my involvement in shaping the CPSP qualification. The joint collaboration between FIBA and LIBF underscored the significance of addressing regulatory considerations in the sale and advisory processes associated with buy-to-let mortgages.
This exploration aimed to enhance the understanding and expertise of practitioners in specialist property finance. As the certification delves into various aspects of the industry, the focus on regulatory nuances adds depth and relevance to the comprehensive education provided by CPSP.
Consumer Duty | The answer is, well, it depends.
There exist three distinct categories of buy-to-let loans, each catering to specific circumstances:
- 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.
- 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.
- 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 a mortgage qualification and regulatory status for residential mortgages.
- 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!