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Net Lawman - Legal Documents for Landlords

  • Buy to let regulation is all about property price control


The latest twists in the public spat between buy to let mortgage lenders and regulators is a row over capping the maximum loan-to-value a borrower can get against a property investment.


Scrapping 100% plus mortgages for homebuyers and imposing a maximum loan-to-value on other borrowers is one of the aims of the Financial Services Authority – but behind-the-scenes a bigger battle is raging.


The real prize is control of the property market and the ability to manipulate property prices.


Buy to let regulation brings all residential lending under the scrutiny of the FSA.


Imposing a cap on the amount homeowners and investors can borrow – including through second charge or secured loans that are also the subject of current regulation talks – means the FSA has a tight grip on the tap that turns mortgage funding on and off.


Controlling the flow of funds takes the burn of property price inflation out of the boom-or-bust cycle.


The lenders don’t want to relinquish the power to package lending as they see fit because buy to let funding is a high-risk high margin arena.


Regulation is good news for buy to let landlords


Buy to let will probably never function at the same level as the past decade.


The regulator will wrest control from the lenders and will undoubtedly impose loan-to-value caps. A good guess would be somewhere between 66% and 75% loan-to-value for buy to let. Historically, this was a comfortable risk level for lenders before the shackles were removed from buy to let borrowing.


Interest rates and fees for property investment loans are likely to settle at a commercial banking rate to encourage professional property investment.


The result the FSA hope to get is a steady, low rate appreciation in property values rather than an unsustainable bubble.


It’s all good news for buy to let investors who already have a property portfolio.


Providing a rise in interest rates does not throw a spanner in their financial works, they should see a slow but steady rise in prices and a reasonable ongoing rental demand as the market finds a more sustainable level over the next 10 years.


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