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.”