Wednesday, 4 November 2015

Are You A "Consumer" or "Professional" Buy To Let Borrower?

Hot on the heels of the recent rumours of George Osborne giving the Bank of England more powers to regulate the BTL mortgage sector, new European regulations being introduced in March 2016 look likely to beat them to it with legislation that will create important distinctions between Professional Landlords running property businesses and 'Accidental Landlords' requiring consumer protection

The Mortgage Credit Directive is a piece of EU legislation which has been around since 2003 and many aspects of it have already been introduced under the Mortgage Market Review which affected residential home loans

The UK government has interpreted this in such a way that will cause BTL mortgages to become regulated for the first time

From 21 March 2016, anyone taking a buy-to-let mortgage that isn't being used for a property business will need have to take out a regulated product

This includes anyone who has inherited a property that is let out, or who plans to rent out a home they previously lived in. This is because under the MCD they will be deemed a consumer rather than a professional buy-to-let borrower

The rules will change the way mortgages are sold and mortgage brokers and lenders will need specific permissions from the Financial Conduct Authority to advise and provide these Consumer Buy-to-Let loans

Until now BTL borrowers have not had to undergo the same sort of affordability tests that apply to residential mortgage applicants but from March of next year "Consumer" BTL borrowers will need to do so  - the treasury estimate 11% of existing BTL mortgages fall into this category

It's unknown how the lenders will react, I can't see it having a hugely significant impact on the choice of mortgages or providers but just as with the mooted increase in BoE powers I can see that this could have a significant & destabilising effect when 'Accidental Landlords' come to remortgage 

I say this as by their very nature Accidental Landlord properties are unlikely to offer the same sort of yields & cashflow as those properties specifically bought as investments and it may be that if they fail the required criteria to obtain a remortgage their owners are forced to take alternative action such as selling their property 

With the forthcoming changes to Landlords tax relief on mortgage interest payments it could provide further impetus for lenders to focus more on providing BTL mortgage products for those borrowing through dedicated property companies 

Click here for an excellent This Is Money article giving more details on the likely changes and their impact

If you'd like to have a chat about the likely impact of this legislation, I'm not a financial adviser so couldn't offer advice but could certainly have a chat about it! If you'd like to discuss any aspect of property investment in Sunderland feel free to give me a call on 0191 567 8577, email or pop into our 11 Frederick Street office for a chat

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