Financial watchdog to bare its teeth at buy-to-let

Britain's financial regulator is tipped to tighten the rules governing buy-to-let investments, as part of an anticipated clampdown on Britain's mortgage market.



The Financial Services Authority began scrutinising the market in 2007, before the credit crunch that caused the collapse of lenders like Northern Rock and Bradford & Bingley.



Its regulation of mortgages three years earlier excluded loans for buy-to-let properties due to them being categorised as investments rather than owner-occupied homes.



Now however, and following the lax lending criteria that fuelled the financial crisis, the FSA is said to be looking at a cap on the size of mortgage that can be lent.



If it decides such action is needed, limits may be recommended on the multiple of the buyer's income or on the proportion of the value of the property that could be borrowed.



Ministers might be urged to enshrine these steps in law to stop loans that are five times the purchaser's salary or 125% of the house value, The Independent reported.



Making an appeal to law-makers is the FSA's only course, as it is up to the government to decide whether the authority's regime should be extended to buy-to-let operators.



The FSA has also been heard grumbling about loans to sub-prime borrowers, and to the self-employed - in both cases because of approval without checks on the borrower's income.



In fact, almost half of 'self-cert' loans, which are the obvious route for the self-employed, were granted without any proof of income, according to FSA records for 2007.



Although an outright ban on such mortgages was floated by the regulator, its officials hinted more recently that they would only restrict their availability, after acknowledging self-certs remained a "legitimate" product for the self-employed.



The FSA might therefore want special selling requirements on more complex loans and demand lenders back them with extra capital reserve; again, to avoid the same problems in the sector from reoccurring.