Govt U-turns on buy-to-let regulation for ‘accidental landlords’

The Government is to bring in new regulations for part of the buy-to-let market in order to comply with the EU mortgage credit directive.

In a consultation on the directive, published today, the Treasury says so-called “accidental landlords” – borrowers who have not actively decided to acquire a property in order to rent it out and are not acting in a business capacity – must be regulated.

Examples of cases that would come under the proposed regulation would be where a property has been inherited, or previously lived in by a borrower unable to sell it and so instead decides to let the property.

The proposed regulations will apply to new loans from March 2016, when the EU directive comes into effect.

Borrowers who do actively purchase a property to then let it out, therefore acting in a business capacity, will remain unregulated.

It was previously expected that the EU would include voluntary mechanisms to cover the buy-to-let market without imposing regulatory restrictions, and the Council of Mortgage Lenders says it is disappointed at the latest Treasury announcement.

CML director general Paul Smee says: “With the mortgage market review out of the way, we now enter round two of regulatory change as a result of the European mortgage directive. We are hopeful that most of the impact should be modest, as much of it was anticipated and helpfully built in to the new rules in the first place.

“It is frustrating though that, despite earlier assurances, the buy-to-let position turns out not to have been adequately resolved, resulting in a new proposal for regulating part of the buy-to-let mortgage market. The regulatory regime now being proposed is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met.”

Building Societies Association head of mortgage policy Paul Broadhead says: “It is clear that this Directive will add cost and complexity to the mortgage process, with no discernible consumer benefit. I am pleased that the Government is taking a pragmatic approach to implement the minimum requirements to achieve compliance. 

”However, we cannot get away from the potential for further disruption and consumer confusion, so soon after the implementation of the MMR and well before its impact has been fully is analysed.”

Originally, the directive would have captured buy-to-let mortgages but the UK mortgage industry successfully argued that these mortgages should not be regulated in the same way as residential mortgages.

Intermediary Mortgage Lenders Association chairman Charles Haresnape recently told Mortgage Strategy that the trade body was still in discussions with the CML over how the EU’s mortgage credit directive will be implemented.

Haresnape said: “We are looking at what a voluntary code on buy-to-let looks like. There is an opt-out from the EU directive for buy-to-let which was negotiated by the Financial Conduct Authority. It is one of those situations where you ask ‘why fix what isn’t broken?’”

Treasury financial secretary Sajid Javid, speaking at a CML lunch in April, said he did not think the directive would benefit UK consumers and subsequently promised to “minimise disruption” to the UK mortgage market.

He said: “I’m not convinced of the benefits of these regulations to UK consumers or to UK businesses.

“That’s why our approach to implementing these will be to – wherever possible – minimise the disruption they cause, which will be very much in line with our wider priority of reducing regulations on business.”

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  • The Cynical Broker 8th September 2014 at 2:25 pm

    Mr Cloy, in your world, if investors must be “deterred” from Buy To Let, then what are they allowed to invest in? This mass injection of supply onto the market that you hope will cause prices to fall, may assist some FTB’s (assuming they can pass affordability) , but plummeting prices will cause the rest of the second hand market to shut up shop and stay put unless absolutely necessary. Falling prices will hardly encourage builders to build more new homes either !

  • The Cynical Broker 8th September 2014 at 2:18 pm

    Charles Haresnape says “why fix what isn’t broken ?” This is the FCA we are dealing, they love to try and fix what isn’t broken, and if they can actually break it, then so much the better ! Then they can proudly point and say “Look we’ve done soemthing!”

  • Phil Martin 5th September 2014 at 8:10 pm

    I don’t agree that additional regulation will deter investors/ landlords who are already subject to substantial amounts of legislation affecting their business and this will have little impact on them, other than making mortgage applications somewhat more tiresome. It will in fact increase costs incurred by lenders which will be passed to landlords and in turn create an increase in rents.

    Rather than answering your tax comment, perhaps you could clarify exactly which tax “subsidy” you are referring to.

  • Colin Cloy 5th September 2014 at 2:25 pm

    All BTL mortgages need to be regulated in order to deter investors. In addition the £13.8 billion income tax subsidy to landlords needs to drastically cut or removed all together to improve the ever increasing budget deficit.

    The sooner the investors are encouraged to put their property portfolios on the market the sooner house prices will fall and allow the many millions of FTBs who wish to purchase to get on the “property ladder”. It will also cut immigration as there will be nowhere for them to rent and make it much easier for the authorities to remove illegal immigrants from our over crowded island!

  • Phil Martin 5th September 2014 at 1:59 pm

    This is rather contradictory, it’s lack of clarity and ill thought out approach is entirely in line with much FSA/FCA regulation.

    Merely defining an accidental landlord is an impossibility and will result, as usual, in wider sweeping regulation to catch all cases.

    The suggestion that either an inherited property (what if it was an inherited buy to let property, or what if one beneficiary takes a mortgage to buy 2 other beneficiaries out, deliberately to retain an investment) or a former home (tries to sell but cant, how do you confirm this?) automatically creates a regulatory burden when they come to remortgage to an normally unregulated buy to let is ludicrous.

    People are of course allowed to change their minds and assets which were personal can transfer to become business assets and the start of a property portfolio.

    To suggest that their first investment property will forever be subject to regulated mortgages rather than commercial mortgages (or in reality, all commercial / btl mortgages must be forced to meet the regulations or cannot be used on that property) is ludicrous.

    Of course in reality an accidental landlord who is letting out a property on a residential mortgage (shock, horror) or has obtained consent to let has a mortgage that is already subject to the regulations.