Buy to let landlords may find raising a mortgage harder as lenders prepare to enforce tough new borrowing rules.
The countdown to the start of the European Mortgage Credit Directive has begun as some banks and building societies plan to impose the measure early – even though the official start date is not until March 21, 2016.
The directive splits the buy to let mortgage between professional and consumer landlords.
Professional landlords should find their businesses unaffected by the directive.
However, a new class of consumer landlords face many restrictions on their buy to let borrowing.
Consumer landlords are defined as having a single letting property, as renting out a former home or a home they have inherited.
Instead of basing mortgage borrowing on the rental income of these homes, lenders have to impose affordability tests that are similar to residential mortgage underwriting.
This means lenders will have to ensure a buy to let mortgage is repayable from disposable income after considering other borrowing.
“It is unclear how the directive will affect the market, or consumer choice,” said a spokesman for trade body The Council of Mortgage Lenders.
“It is possible that some lenders, particularly small and medium-sized firms, may be cautious about offering consumer buy-to-let mortgages.
“One consequence may be that consumers wanting to take out buy-to-let loans will have a narrower choice in the market, particularly in the short term.”
The government insists that restricting consumer landlord borrowing is not an attempt to regulate buy to let lending.
“Some buy to let borrowers are not acting as a business,” said a spokesman. “In cases where landlords are renting a home due to personal circumstances rather than running a business, the consumer lending rules will apply.
“Mortgage lenders will identify these borrowers during underwriting or allow them to declare they are running a business as long as they have no reason to doubt their claim.”
Thanks Adrian. I’ve posted a link to this on Property118.
I should be considered a professional, I suppose, having a small/medium size portfolio – however I can only ever borrow at high rates (currently around 5%) and find it difficult even then. Most of my properties are buildings which have been properly converted into self-contained flats, but “high risk” because they are considered multi-units. The worst aspect is the high fee – I remember it being around £300 and now it’s nearer £3000. The claims that it is easier for someone like me are a bit skewed – it has always been more expensive, so maybe this move will level the playing field a bit or have I missed something?
So exactly what is the definition of a landlord business? According to this article professional landlords will not be affected as they are a business although in the latest budget taxation changes they are not a business !
Smaller accidental landlords will be affected and the rental income will not be taken into account, the government are trying to ruin smaller landlords to make way for the large companies, their friends. I never thought that I would see the day that the conservatives were the party to be scared of
I see Michael above sees this as the Government. These are European rules and the Government has tried to resist this. I agree George Osborne is making things worse for landlords, with his taxation changes, but this mortgage situation is not the same thing.