Fair Rents (Scotland) Bill or Artificial state manipulation of free market rent?10:34 AM, 6th November 2020
About 3 weeks ago 36
Rows over the future of buy to let lending are raging on as the European Union debates ways to safeguard consumers from unfair lending practices.
European politicians are formulating a mortgage directive to standardise lending rules across the 27 member states, but buy to let lenders in the UK are protesting the new constraints are unfair to banks, building societies and borrowers.
The issue for lenders is the UK is the only European country that has a thriving buy to let market.
In other countries, property investment is carried out by companies or trusts rather than individuals.
Combining buy to let and residential mortgages under the directive would mean lenders having to underwrite property investment loans in the same way as home mortgages.
Buy to let landlords would have to prove they have the income to support their borrowing on second homes and the loans would come under consumer protection rules.
Now, lenders treat buy to let loans as a hybrid finance agreement somewhere between home mortgages and business loans that base affordability on rents rather than the borrower’s income.
The latest move in Europe is a report by the European Parliament’s internal markets and consumer protection (IMCO) committee that implies the directive should “reflect not only differences between national markets, but between different types of products that are targeted at different groups of consumers.”
The Council of Mortgage Lenders (CML), the trade body leading the protests against including buy to let in the mortgage directive, claims the report supports omitting buy to let from the new rules.
“We believe it is inappropriate to regulate buy to let under rules designed to protect consumers, and we understand that amendments have now been laid that would exempt this type of lending from regulation under the directive,” said a CML spokesman.
“Buy to let loans are a key feature of the UK market, though rarely seen in other European countries. They differ fundamentally from residential mortgages because they are targeted at professional property investors, rather than consumers.”
This report is no means the end of the argument – the directive is a draft at the moment that goes before the European Parliament for discussion next year.
The process to make the directive law could take another year or two after that.
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