The FSA’s proposals, which were published in Monday’s mortgage market review discussion paper, reflected ‘a more intrusive and interventionist style of regulation.’ Some of the key recommendations included the banning of ‘self-cert’ mortgages which means borrowers’ income must now be verified.
Fixed Rent founder Tom Nicolson believes the FSA reforms will severely dent recent hopes of recovery in the property market. In particular, its effect on the buy-to-let market, which is now under scrutiny, will result in a sharp drop in the number of mortgage approvals, and therefore a sharp drop in the value of property.
Nicholson says:
“With minimum loan-to-value ratios offered at 25%, the buy-to-let market was already struggling. The FSA reforms will prove the final nail in the coffin.”
The demise of the once buoyant buy-to-let market led Nicholson to devise a viable alternative. The result was Fixed Rent’s unique investment opportunity dubbed ‘rent-to-let’, which empowers people to quickly build property portfolios without the risks, cost and difficulty in securing mortgages.
Fixed Rent rents properties for three or five years and guarantees landlords the same rental income, on the same day every month for the entire term, regardless of whether it’s tenanted or not. Fixed Rent, and its licensees nationwide, sublet the property for a profit.
This system means individuals can build property portfolios with minimal exposure to risk. For example, one Fixed Rent licensee has built a £7m portfolio and is making a profit from each property. If these properties had been bought to let, the licensee in question would have needed to raise £1.75m in deposits.
In addition to lenders demanding ever-bigger deposits, they are also now limiting the amount they are willing to loan to each borrower. For example, HBOS, which lends one third of all mortgages, have instated a maximum exposure of £1m per borrower. Just two years ago, the maximum limit would have been ten or 15 times this level.
Nicholson says:
“The days of people becoming professional landlords by buying large numbers of properties are well and truly over. In these conditions, it’s little wonder that guaranteed rental schemes like Fixed Rent are flourishing.”
