Those who wish to let their former homes may be denied mortgages, following implementation of a new European Mortgage Credit Directive, which must be brought into UK law by March 2016.
The new EU directive sets common standards that EU members need to meet in order to protect consumers taking out loans to buy residential property.
This follows mortgage reforms already made earlier this year, which have seen tougher affordability checks on borrowers.
Under current rules, landlords are generally viewed as business borrowers requiring less regulation, and owner-occupiers are viewed as consumers who require more protection.
As it stands, it is relatively uncomplicated for occupiers to convert their regular mortgages into landlord loans, referred to as ‘let to buy’.
The new rules may put off banks and building societies from lending to owner-occupiers turned landlords. Due to particular circumstances, such as, being relocated for work or because they can’t sell their property, mortgages for these ‘accidental’ landlords will be regulated much more tightly. The new rules may also catch buy to let mortgages where the owner or a family member occupies part of the property.
As the directive does not draw a distinction between buy-to-let lending and lending to individuals who are buying their own home, it provides member states with the option to exempt buy-to-let from the detailed requirements of the directive, and instead put in place an alternative appropriate framework for the regulation of these mortgages. This has been recognised by the Government which is currently consulting on proposals for implementation of the Directive. The results of the consultation and draft rules on the Directive are expected this autumn.
There is concern within the industry that lenders may struggle to distinguish between ‘consumer’ landlords and ‘business’ landlords making it more difficult and complicated for a home owner to let their property, whilst burdening lenders with the increased costs of compliance with the new rules.