The Council of Mortgage Lenders (CML) has warned that regulation of buy-to-let lending will not resolve issues surrounding poor advice being provided by property investment clubs (PIC).
The CML says while there is very little interaction between PICs and buy-to-let lenders regulation of PICs would provide better protection to consumers.
PICs typically operate by encouraging potential investors to pay large sums as subscriptions for access to new build or off plan properties, usually flats, at ‘discount prices’. Marketing often concentrates on the ability to re-sell property and make a short-term profit, rather than on the rental income potential of a property.
The CML says between 5% and 10% of lending is secured on new build properties and even less than this on flats. It claims the proportion of buy-to-let lending that could be making its way to PIC induced investors, is as a result, tiny.
There have more recently been calls for the regulation of buy-to-let lending but the CML says this would not protect consumers from suffering a loss as a result of speculative investment through PICs. It has also called for the regulation of PICs through the Financial Services Authority(FSA) arguing that regulating buy-to-let lending would not protect consumers adequately from the dangers associated with short term investments throug PICs.
Andrew Heywood, senior policy adviser at the CML, says: ”The unfortunate activities of a number of PICs have attracted speculative investors who are distinct from the bulk of buy-to-let landlords. Research shows that most buy-t0-let landlords are in the market for the long-term. "Buy-to-let lenders have taken a lead in ensuring that speculators and their advisers do not benefit at the expense of bona fide investors. It is now important other stakeholders in the residential property market are seen to maintain similar views.”
Meanwhile Robin Gordon Walker, spokesman for the FSA says it is unwilling to comment on calls for what should be regulated saying the decision lies with government.
But a Treasury spokesman appears to contradict Gordon Walker saying: "We have relayed industry concerns about the activities of certain investment clubs to the FSA. It is alleged that the activities of some of these clubs may fall under the FSA's collective investment regime. The FSA will of course examine these concerns very carefully.
"FSA supervision teams monitor the regulatory perimeter carefully and will take appropriate action against any breaches that are found. Carrying out an FSA regulated activity without authorisation is a criminal offence.
"We do not believe at this stage that there is any need for additional regulation."
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