Oh dear oh dear.  The FSA want to regulate buy to let mortgages.  My opinion:

 

OUTRAGEOUS!

 

Now I understand regulation for residential mortgages as not everyone has a business brain so reigning in lenders preventing them granting loans to borrowers who cannot afford it in the long run makes sense.

 

However regulating business loans is very very dangerous.  This is the top of a very slippery slope.  The biggest problem here is that regulators do not understand business.  Full stop.  They have no place within business. 

 

Business decisions can never be regulated.  Business decisions are far too complex for them to be regulated.

 

Let me explain by way of an example.  Bank A wants to lend £10m to Borrower B.  Upon this deal Bank A has calculated that they will make £1m from the deal.  Borrower B has worked out they will make £2m from the deal.  Where does a regulator fit in within this equation?

 

Bank A does not lend £10m to any old borrower.  Bank A has evaluated the risk and taken all factors in to consideration to make the decision to lend.  Borrower B has enough experience to work out whether they are going to make a profit on a deal enough for them to seek funding of £10m.  The fact that they fit the banks lending criteria means they have a track record, enough security and the asset is suitable security.

 

How can a regulator come in and regulate this transaction?  What we could start seeing is a shift towards us becoming a more leftist state.  This will mean business can not flow.  Dealing with regulation will cloud the core thrust of business which is all about MAKING MONEY. 

 

This is why our country has flourished.  Businesses make money when they are free to make decisions.  As soon as a 3^rd party tries to get in and somehow protect outside parties it all goes wrong.

 

I really really hope they think this through.  I just hope this is not a knee jerk reaction to the credit crunch.  The credit crunch had NOTHING to do with us!  If they are listening this is my message to the regulators:

 

It was the sub prime USA toxic debts NOT us buy to let landlords!

 

They probably can’t hear me but it is worth a try!  If they are worried about buy to let landlords overstretching themselves they should look to protect the tenant NOT the landlord.  Give the tenant assurity of tenancy in the event of landlord default of the mortgage rather than prevent the landlord getting the mortgage.  It is like the regulators writing off those who wish to start investing before they have even had a chance to invest!

 

I hope I am not on my own with this view point.

 

Ajay

Posted on: 19th Oct 2009