EU threat to Accidental Landlord Let to BuyMake Text Bigger
The Treasury has decided that to conform to the European Mortgage Credit Directive (compulsory by 2016) all Buy to Let contracts, where the mortgage was not entered into solely for business purposes, will be defined as “consumer” loans.
Hence all Let to Buy or accidental landlords will become regulated in a similar way to residential mortgages. The risk is that the increased complexity and paperwork involved in regulation will make Let to Buy less attractive for lenders to offer, and make it much more difficult and costly for potential Accidental Landlords.
Currently Buy to Let mortgages are treated as commercial loans and do not fall under regulated mortgage contracts. This is because the borrower is deemed to be more sophisticated and have a greater understanding of the risks involved. The exceptions are Buy to Let applications where the borrowers intends live in the property themselves at some point in the future, or have a close family member live in the property. These would then be regulated contracts and as in the current market there are very few Buy to Let lenders willing to offer mortgages on these types of loans due to the increased risk and cost.
The Treasury said “there are some situations where borrowers do not seem to be acting in a business capacity. Examples of this may be where the property has been inherited or where a borrower has previously lived in a property, but is unable to sell it so resorts to a buy-to-let arrangement. In these cases, the borrower is a landlord as a result of circumstance rather than through their own active business decision.”
The Council of Mortgage Lenders said “the regulation the Treasury now proposed is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met.”
This could be the thin end of the wedge as the EU are really determined to force all Buy to Let mortgage contracts to be regulated in the long term, even if have been defeated so far!
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