New EU mortgage rules will have an impact on those that become accidental landlords
The new EU mortgage rules set out in the Mortgage Credit Directive aims to create a Union-wide mortgage credit market with a high level of consumer protection. It applies to both secured credit and home loans. This will be in place by March 2016.
So what does this mean for the Mortgage market?
Lenders will be forced to apply affordability checks on all re-mortgage, meaning current mortgage holders may become prisoners to their current lenders. The FCA recognises the issue and introduced transitional arrangements and so whist the borrower does not require more money from the current lender and they have a good payment history they should not be impacted by the affordability rules.
Under the proposals, second charge firms would be required to comply with FCA mortgage rules in areas such as affordable lending, advice, and dealing with payment difficulties. Second charge mortgages are a type of mortgage that can be taken by an existing borrower on top of their main (or first charge) mortgage. They are a secured loan, which means they use the borrower’s home as security. Many people use them as a way to raise money instead of re-mortgaging.
So will all buy-to-let loans be regulated by the new EU mortgage rules?
No. The government considers that, in most cases, buy-to-let landlords make an active decision to become a landlord, an activity for which they will receive an income and for which they will be taxed as a business. As such, the government does not consider that lending to these borrowers should be regulated by the new EU mortgage rules.
Which buy-to-let loans will be regulated?
The government considers that, to meet the requirements of the new EU mortgage rules , it is necessary to put a regulatory framework in place for those cases where borrowers are not making an active decision to acquire a property to become a landlord, and where they do not seem to be acting in a business capacity (“consumer” buy-to-let). Examples might include cases where the property has been inherited, or previously lived in by the borrower, but the borrower is unable to sell it and so lets it instead. The proposed new regulation will only apply to relevant new loans (not existing loans), and not until March 2016.
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