On second-charge lending, the CML’s longstanding position has been that all secured lending should be regulated in the same way under the FSA. This would create a coherent and comprehensive framework, more aligned with EU regulation, although there is a need to ensure that the impact on low-cost home-ownership is properly considered before proceeding.
The CML said it also agreed that consumers could potentially suffer when mortgage books were "sold on", and that regulatory scope should be extended to address this. However, regulation should only cover acquirers when they take day-to-day decisions on the interest rate, other charges, service levels, and arrears management. Where the power over these decisions has been delegated to a servicer or administrator, which is itself regulated for these activities, then there should not be "double" regulation. The CML cautions that it is also crucial to avoid unintentional problems for securitisation and covered bond transactions.
However, the CML disagreed with the proposal to extend regulation to buy-to-let loans. It would not result in increased consumer protection, would almost certainly capture an inappropriate range of commercial transactions, and failed to address the issue of advice on whether to invest in property at all, which was much more likely to be a cause of consumer detriment than the mortgage itself. It is also the wrong way to address concerns about systemic risks, which are more appropriately addressed through prudential rather than conduct of business regulation.
The CML’s response said: "Fundamentally, the CML still believes that buy-to-let loans are essentially commercial transactions with an investment dimension, and should not be subject to retail mortgage regulation. Inappropriate regulation could further damage buy-to-let lending, which has shrunk substantially in the last two years, at a time when the Government is separately promoting investment opportunities in the private rental sector. Extending the FSA’s scope as proposed would undermine the Government’s wider housing policy."
CML director general Michael Coogan said: "While we support some of the proposals to extend regulatory scope, the Treasury and the FSA need to tread carefully to avoid unintended negative consequences. As far as buy to let is concerned, the regulatory proposals are barking up the wrong tree – for amateur property investors, poor investment advice is the issue, not the mortgage.
"The recently-published consultations from the Treasury and the Department for Communities and Local Government on the role of the private rented sector are far more relevant and influential in determining the role played by buy to let. The Treasury recognises that regulation has in the past dampened incentives to invest in the private rental sector. The proposals to extend mortgage regulation designed to protect home-owners to the buy to let sector would simply repeat this mistake."
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