One of the markets leading buy to let lenders, BM Solutions, announced just under a month ago that they would be opening criteria to allow for first time buyers to raise finance for new investment property purchases. Four weeks later, the lender has beaten a hasty retreat on the proposal, and has chosen to reverse the decision, out of concern that the change may lead to increased attempts to commit mortgage fraud.
The head of sales at BM Solutions, Phil Rickards, confirmed the reversal was made to curb a potential increase in fraudulent activity. He said, ‘The decision was made some time ago to relax the criteria and open buy-to-let to a wider audience and now we have implemented it, the risk of somebody staying in the property looks greater than we first thought.
‘We are doing our part to make sure we lend responsibly and to reduce the risk of gaming.’
BM Solutions have for many years been regarded in the mortgage market as a lender open to offering mortgages to a wider range of clients than the majority of larger buy to let lenders, with a flexibility to incorporate lending to contractors a major plus. So when the decision to loosen lending criteria to allow first time buyers to purchase investment properties was introduced, many market commentators felt it was about time the lender widened its proposition to a group that is often maligned in the mortgage sector.
Interestingly, the news that BM have now decided to back down from the decision to offer loans to first time buyers comes hot on the heels of comments made by the Financial Conduct Authority that this will become the bodies key focus in the early part of 2015. The FCA are due to enforce the Mortgage Market Review regulations, outlined in a report released at the start of April, where-by lenders will be expected to widen the scope of their underwriting processes to confirm that a borrower can afford a mortgage over the long term. The review has been produced, amidst fears that previous poor practices led to the onset of the financial crisis in the UK.
The FCA have now confirmed that they will give lenders 12 months to bed in new practices, at which point the body will begin to check-up on underwriting processes to ascertain whether the regulators requirements are being met. What has potentially sparked the change in BM Solutions outlook is the point that the FCA will be paying particular focus on buy to let lenders, and how they confirm that a property is actually being purchased to be let out. The concern for the FCA is that borrowers could still attempt to ‘game’ the system to buy a property as a main residence, through a route that historically does not require a significant amount of income verification during the application process.
Mark McBurney, of Contractor Mortgages Made Easy, said: ‘The term ‘gaming’ is probably not the most appropriate description of what is essentially mortgage fraud. While borrowers may feel that they are not committing an offence, the practice of securing a home to live in via the buy to let route is actually a crime and could lead to far more serious consequences than just a slap on the wrist.’
McBurney went on to say that, ‘checks on affordability to purchase a property may become protracted post-MMR, but once a borrower has been refused a mortgage due to a fear of fraudulent activity, a black mark will be registered against them that is not going to be lifted. The message should now be more than ever, that there is a correct channel for all types of mortgage borrowing, and the industry has just as much responsibility to prevent fraudulent activity, as a borrower has to not attempt it.’
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080