The dust is just starting to settle on the 'credit crunch' and landlords & BTL mortgage lenders are beginning to get some kind of clarity of what the buy-to-let mortgage market of the future will look like.
Many landlords have been holding fire on re-mortgaging or buying additional residential investment properties waiting to see how things 'pan out'.The Council of Mortgage Lenders has announced that buy-to-let lending last year accounted for just over 10% of all mortgage lending and that total buy-to-let mortgages passed the million mark for the first time.
After the turmoil of the last 6 months I thought it was worth taking a look inside the buy-to-let mortgage industry and discover what really goes on. Here is the inside track on buy-to-let mortgages.
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| The Inside Track On Buy To Let Mortgages For Residential Landlords |
Regulation
Most landlords have heard of the Financial Services Authority (FSA). It was established by the Government to protect the interests of consumers and it now regulates a whole host of financial products from pensions to residential mortgages.
However, at the present time, buy-to-let mortgages are not regulated by the Financial Services Authority (FSA). This is because they are classed as a commercial product. The assumption is that people operating in this sector are 'commercially aware' and do not need the same level of protection. There is a trade body called the National Association of Commercial Finance Brokers (NACFB) which some mortgage brokers belong to.
Membership of the National Association of Commercial Finance Brokers (NACFB)is voluntary and it sets out guidelines for its members to operate within. However, Landlords should be aware that they have no direct powers to act in the consumer's interest against anybody that breaks this code although it does have its own complaints and disciplinary procedures to product landlords against unacceptable working practices by any of its members.
Although buy-to-let mortgages are not regulated by the Financial Services Authority, they are still covered by the Financial Ombudsman Service (FOS). This means that by going through a BTL mortgage broker and receiving advice, a landlord has a degree of protection against taking the wrong product or a bad deal, as opposed to none if a landlord goes it alone. Complaints against brokers are independently reviewed by the Financial Ombudsman Service (FOS), using the principles of Treating Customers Fairly, which cover such things as the way that a deal was marketed to a landlord, whether a landlord received sufficient information to make an informed decision, whether they were aware of all of the costs involved in the transaction and so on.
Positives
Things are not all bad. It is exactly because of this light regulation the UK has one of the most competitive mortgage markets in the world resulting in a constant array of new and innovative buy-to-let products. Unfortunately light regulatory touch also means that there are a few 'dodgy' operators out there that can exist legally and make money out of naive landlords. Therefore landlords need to be wary about who they buy through and how the BTL mortgage product is sold.
The Players
Where do landlords sit in the buy-to-let mortgage industry?
In essence the buy-to-let mortgage industry has three players:
* providers - such as building societies that provide mortgage funds and package the products;
* the intermediaries- the people that sell the products and give advice
* consumers - the purchasers of the mortgage products i.e. landlords
The arrangements in the buy-to-let industry are slightly complicated in that some of the so called providers like the building societies will sometimes sell direct to the consumer and not through an intermediary. Most landlords are now savvy enough to shop around amongst various BTL providers to ensure we get the best deal. Hence we go to an intermediary such as a mortgage broker; who offer a range of products from a variety of BTL mortgage providers. Buy-to-let mortgage brokers can be office based but increasingly operate through the Internet.
Why mortgage intermediaries?
Most mortgage providers like having intermediaries because it means they save on marketing expenses, relying instead on these agents to do the selling work for them. It also means that the intermediaries can filter the applicants to ensure that they meet the mortgage lenders criteria and then deal with all the initial form filling to ensure that any application is made correctly.
Most landlords have heard of the Financial Services Authority (FSA). It was established by the Government to protect the interests of consumers and it now regulates a whole host of financial products from pensions to residential mortgages.
However, at the present time, buy-to-let mortgages are not regulated by the Financial Services Authority (FSA). This is because they are classed as a commercial product. The assumption is that people operating in this sector are 'commercially aware' and do not need the same level of protection. There is a trade body called the National Association of Commercial Finance Brokers (NACFB) which some mortgage brokers belong to.
Membership of the National Association of Commercial Finance Brokers (NACFB)is voluntary and it sets out guidelines for its members to operate within. However, Landlords should be aware that they have no direct powers to act in the consumer's interest against anybody that breaks this code although it does have its own complaints and disciplinary procedures to product landlords against unacceptable working practices by any of its members.
Although buy-to-let mortgages are not regulated by the Financial Services Authority, they are still covered by the Financial Ombudsman Service (FOS). This means that by going through a BTL mortgage broker and receiving advice, a landlord has a degree of protection against taking the wrong product or a bad deal, as opposed to none if a landlord goes it alone. Complaints against brokers are independently reviewed by the Financial Ombudsman Service (FOS), using the principles of Treating Customers Fairly, which cover such things as the way that a deal was marketed to a landlord, whether a landlord received sufficient information to make an informed decision, whether they were aware of all of the costs involved in the transaction and so on.
Positives
Things are not all bad. It is exactly because of this light regulation the UK has one of the most competitive mortgage markets in the world resulting in a constant array of new and innovative buy-to-let products. Unfortunately light regulatory touch also means that there are a few 'dodgy' operators out there that can exist legally and make money out of naive landlords. Therefore landlords need to be wary about who they buy through and how the BTL mortgage product is sold.
The Players
Where do landlords sit in the buy-to-let mortgage industry?
In essence the buy-to-let mortgage industry has three players:
* providers - such as building societies that provide mortgage funds and package the products;
* the intermediaries- the people that sell the products and give advice
* consumers - the purchasers of the mortgage products i.e. landlords
The arrangements in the buy-to-let industry are slightly complicated in that some of the so called providers like the building societies will sometimes sell direct to the consumer and not through an intermediary. Most landlords are now savvy enough to shop around amongst various BTL providers to ensure we get the best deal. Hence we go to an intermediary such as a mortgage broker; who offer a range of products from a variety of BTL mortgage providers. Buy-to-let mortgage brokers can be office based but increasingly operate through the Internet.
Why mortgage intermediaries?
Most mortgage providers like having intermediaries because it means they save on marketing expenses, relying instead on these agents to do the selling work for them. It also means that the intermediaries can filter the applicants to ensure that they meet the mortgage lenders criteria and then deal with all the initial form filling to ensure that any application is made correctly.
 |
| The Inside Track On Buy To Let Mortgages For Residential Landlords |
The reward for all this is that most BTL mortgage lenders pay the intermediary a Procuration fee or commission - typically around 0.3% - 0.5% of the BTL loan amount. The intermediary then also generally gives advice to the consumer. In most cases they charge a fee for this; the brokers fee.
This is the basic structure of the industry, although there are variations in the business model with some BTL mortgage companies choosing to sell direct to landlords. Some of the mortgage comparison websites act as the intermediary, but without offering financial advice. They allow the consumer to select their own products. They receive their revenue either each time a product is sold, or when a lead is passed through to the mortgage provider.
This is the basic structure of the industry, although there are variations in the business model with some BTL mortgage companies choosing to sell direct to landlords. Some of the mortgage comparison websites act as the intermediary, but without offering financial advice. They allow the consumer to select their own products. They receive their revenue either each time a product is sold, or when a lead is passed through to the mortgage provider.
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