WARNING Unregulated Advice

by Readers Question

9:21 AM, 1st April 2015
About 6 years ago

WARNING Unregulated Advice

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WARNING Unregulated Advice

There has been a great response to my last post ”effect of pension release on the BTL market” so I thought I’d post the following both as a WARNING and for discussion. WARNING Unregulated Advice

Currently the Buy To Let financial advice market is entirely unregulated. This means that so called advisors can undertake mortgage broking activities without any come back. The FCA have decided that BTL constitutes a commercial transaction. Unlike regulated mortgages (residential) where you can sue the advisor to the grave and beyond, and where they are required to have, Qualifications, Professional Indemnity Insurance and cover from the Financial Services compensation Scheme, you can do nothing if your investment in BTL goes bad.

Up until now you could argue that as being acceptable since the number of BTL mortgages taken out have been relatively small and the people taking them have been mainly small business people or investors.

That is now changing…. the Grey Haired investors with money for deposits from their pensions are starting to flood the market in BTL (thanks to television programmes telling them how easy it is to make money), these are the same ”poor old grannies who are happy to take money when its good but then decide to play the ”Woe Me” card when it doesn’t go their way.

This WILL be a ticking time bomb…. I can see the headlines from solicitors now ”pensioners loose millions in the BTL markets and advisors (sharks) are to blame for advice etc.

The SHARKS are circling…… I have already started to receive marketing literature from unregulated firms which if i didn’t know better I would probably take further.

My view is easy and simply, as of tomorrow, take BTL mortgages under the FCA control and only allow them to be sold by regulated mortgage advisors.

Problem Solved !!


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Richard Williams

5:02 AM, 2nd April 2015
About 6 years ago

Great comments everyone, let me answer Neil first, the mortgage advisor does not need to know what a good property is (anymore than a lender does) . This is not about investment advice this is regulated BORROWING advice. In response to Mark, he is right regarding BTL advice but when it comes to advice on the appropriate mortgage that should be regulated because I kid you not, when the grey haired investor finds out in a couple of years time that he could have got a better mortgage elsewhere and the advisor was not regulated the ambulance chasing solicitors will have a field day.
On Marks last point a regulted advisor has to show that he has advised the client on his status, ie whole of market or panel, he must also say if he is directly authorised Or part of a club.
One last point Howard response was great but he knows, as I do, unregulted brokers submit through a club, not direct to lenders, thereby getting round the issue of regulation.

Mark Alexander

7:26 AM, 2nd April 2015
About 6 years ago

Reply to the comment left by "Richard Williams" at "02/04/2015 - 05:02":

HI Richard

I think your last post shows just how pointless regulation is because if people can take responsibility for their own property buying decisions then they should also take responsibility for their mortgage buying decisions.

Buying the wrong property is likely to be far worse than buying the wrong mortgage isn't it?

Neil Patterson

8:49 AM, 2nd April 2015
About 6 years ago

I have sold mortgages pre-regulation and post regulation.

Done all Cemap, all FPC and been a compliance officer.

None of my exams or qualifications made me any better at helping customers choose a product or financial strategy. It is experience that counts. Understanding economic and property cycles, basic maths and Product cycles, risks etc etc etc. People who say, with certainty, they know what they are doing don't understand that all the variables are impossible to predict and lack experience.

The regulations are formulaic to make sure a customer gets sold something vaguely appropriate. They do not make you great at your job, but I do recognise they protect consumers with a minimum level of professionalism and understanding, so are generally a good thing.

However, as Mark said, buying the wrong property is way worse than making a mistake on fixed or variable products or the interest rate 0.25% too much.

The amount you can borrow is effectively regulated by the lenders attitude to risk, of which they are much more averse to now, and the main consideration in main residence regulation under MMR is making sure a customer can afford the loan with their income in the long term. BTL is based on the rental income covering the loan not earned income otherwise BTL would simply not exist.

Neil Patterson

8:55 AM, 2nd April 2015
About 6 years ago

BTL is a business and the mortgage is only one part of it.

Under regulation everyone would be struggling to pay a capital and interest repayment mortgage and the first time you got a void it would all go pear shaped!

Mark Alexander

9:05 AM, 2nd April 2015
About 6 years ago

I agree with Neil, the regulations and associated exams to not teach mortgage advisers about property investment strategies, and there are several.

For example, where in the exams or the regulations does is specify what the best mortgages are for all the possible investment property strategies?

Should mortgage brokers be expected to advise their landlord clients that unless they protect a tenants deposit within 30 days they are liable to pay back up to 4 times the deposit and their ability to serve a section 21 notice is severely restricted? Should mortgage advisers check whether the property they are mortgaging falls into a selective or additional licensing area and advise accordingly?

An regulated adviser has to say why he has recommended a fixed rate over a variable but at the end of the day it is nothing more than ar5e covering for the sake of regulations because nobody knows for sure what interest rates are going to do.

Richard Williams

9:19 AM, 2nd April 2015
About 6 years ago

Not sure what Neil means with his last post. Just because the sales process is regulated does not mean all the mortgages have to be on capital and interest or indeed why ''it should go pear shaped'' just because there is a void....the lender simply wants the monthly payment just as they do with residential products.
Again as i said earlier my question was not about regulation of the industry only the regulation of a sale of a mortgage contract......and i cant see why BTL mortgages should in any way be treated differently than any other mortgage.
When i write a BTL case i treat it exactly the same as a residential, same process, same docs, same compliance. No problem.
Just to reinforce my point a large group of solicitors in Manchester are already looking at this issue, my view is better to be safe than sorry.

Neil Patterson

9:54 AM, 2nd April 2015
About 6 years ago

Regulated selling will railroad consumers into repayment mortgages not interest only.

Any business in their right mind would chose an interest only loan over repayment as an option. Cashflow is King.

Neil Patterson

9:57 AM, 2nd April 2015
About 6 years ago

Reply to the comment left by "Neil Patterson" at "02/04/2015 - 09:54":

BTL needs to be run as a business and a business loan forms part of the business plan.

Treating a BTL mortgage the same as a residential mortgage is fundamentally wrong. They are not the same thing.

Neil Patterson

10:07 AM, 2nd April 2015
About 6 years ago

PS. I am not adverse to BTL mortgage advice being regulated. A minimum level of competence is a good thing.

I just don't believe the people regulating it will understand it thoroughly.

Mark Alexander

11:10 AM, 2nd April 2015
About 6 years ago

Reply to the comment left by "Richard Williams" at "02/04/2015 - 09:19":

Hi Richard

The problem with treating BTL mortgages as regulated and advised products is that they are not, and you could be hanging yourself out to dry. Let me give you an example.

West Brom Mortgage Company increased their tracker rates for BTL borrowers who own 3 or more properties purchased their mortgages via advisers (not for their direct customers though). When these customers complained to the FCA their response was that they don't regulate this business. However, many brokers ticked a box to say they'd provided advice. On that basis, they accepted liability for not having pointed out the terms that West Brom have used to effect the rate hike. Hopefully our action group will win in Court and save advisers the grief of the ambulance chasers looking for a cut of compensation payouts from brokers PI policies but that's not a done deal. Only brokers who arranged mortgages on a non-advised basis are safe, solicitors on the other hand are screwed in the appeal goes the wrong way!

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