The Treasury has settled on the definition of an ‘accidental landlord’ as it looks to implement the EU’s mortgage credit directive.
Publishing draft legislation today, the Treasury has defined of ‘consumer buy-to-let contracts’, known in the market “accidental landlords”, as any buy-to-let contract in which the borrower has not entered “wholly or predominantly” for business purposes. The Treasury launched its initial consultation on the directive in September, when it stated that so-called ‘accidental landlords’ would be brought under regulatory scrutiny, but did not did not settle on a definition.
Where a property has been inherited or purchased as a residential dwelling before a change in circumstance has led to the property being rented, such transactions will be captured under the new regime and treated as a regulated mortgage contract under MCOB rules.
Any buy-to-let contract where the borrower has clearly stated the property is to be used for rental purposes will remain unregulated, as long as the lender is happy the borrower is telling the truth.
The new rules will not be applied to pipeline cases, where a loan application has been submitted but not completed, before the implementation date on 21 March 2016.
Additionally, the Treasury has confirmed that responsibility for ensuring regulatory compliance with regards to buy-to-let contracts ultimately falls with the broker firm in question, as opposed to the individual adviser.
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “The clarification on what comprises regulated consumer buy-to-let is positive.”
Building Societies Association head of mortgage policy Paul Broadhead says: “The BSA is still of the view that the directive will offer little or no benefit to UK consumers, but will add cost, complexity and some confusion to the mortgage process.
“However we welcome the Government’s approach to implementation, putting in place the minimum requirements to meet European law. The introduction of an appropriate framework for consumer buy-to-let will keep the majority of buy-to-let lending outside the scope of regulation, minimising the disruption to the market.”