The Financial Conduct Authority (FCA) has issued another warning to borrowers and brokers who are attempting to cheat MMR affordability rules by opting for buy to let
The warning states that those who falsely apply for buy to let mortgages when they should be taking other products are being closely watched.
A spokeswoman for the FCA said the issue of gaming in buy to let “is an area we are keeping under review” to crackdown on people making fraudulent applications.
“Firms need to have procedures in place to ensure that people applying for buy to let mortgages do not intend to live in the houses they are buying,” she explained.
The warning follows comments made by Chris Bramham, Director of Brightstar Financial, who suggested that between five and seven per cent of buy to let referrals to his company were knocked back as “back door residential”.
According to his statement, affordability is the main issue driving many of these cases – saying that “when it looks like [people] can’t get a mortgage they try to get a buy to let”.
Alterations to how affordability is measured were introduced under the Mortgage Market Review last year with many lenders taking a much stricter approach.
Mortgage affordability is calculated by looking at how money is spent and the level of mortgage repayment that can be afforded.
The fact that buy to let affordability is measured on rental income, and not personal income, means some brokers have attempted to cheat the system.
Mr Bramham said that many lenders see this activity as “one of their biggest risk areas” and added that they “spend a lot of time trying to detect it”.
Conversely, Colin Payne – Director of Chapelgate Associates – suggests that gaming is not “as big an issue as some people make out”.
“It’s fraud, but there are genuinely people who want to buy a buy to let as a first time buyer,” he explained.
He pointed to landlords in London who can afford to rent but who lack the funds to purchase property – meaning they view buy to let as an initial route on to the property ladder.