The Mortgage Credit Directive - how will it affect landlords?
Occasionally, you may find yourself with a property that you don’t need. You may have been left it in an inheritance or you may simply be unable to sell for a number of reasons.
When this happens, an option for you to consider is to let out your property. If you choose to do this, as you never intended on purposefully buying the property to let out, you would become what is known as an ‘accidental’ landlord, otherwise known as consumer buy-to-let.
At the moment, consumer buy-to-let mortgages are unregulated by the FCA, but as of March 2016, this is all set to change. Helen Little of Tiffen & Co, Mortgage Advice Burea explains how the new rules could affect you.
What is the Mortgage Credit Directive and what are the new rules?
The new laws were not originally going to affect the British mortgage market; however, the plans will now form part of the Mortgage Credit Directive (MCD) – a wider scheme that will be implemented in March to regulate other loans that have homeowners’ properties as security.
Under the new European Union (EU) regulations, those who find themselves inadvertently becoming landlords will have to pass new affordability tests – similar to those faced when applying for a residential mortgage.
The tests will see lenders assess both borrowers’ incomes and expenditure in much greater details to ensure that they can afford any potential rises in costs.
Why have they brought these regulations in?
According to the Council of Mortgage Lenders (CML), there were 1,630,600 buy-to-let mortgage products in existence at the end of 2014, and out of these, a fifth were accounted for by ‘accidental’ landlords.
As ‘accidental’ landlords do not make a ‘business’ decision to let their properties out and do it as a result of circumstance, the government feel that these borrowers should still be seen as consumers and need to be covered by an “appropriate framework”.
How will it affect me?
Under current rules, these mortgages do not follow the same regulations as residential mortgages and most are calculated in relation to the amount of rental income that is to be made from the property.
However, from March 2016, affordability will be assessed and it could also mean that older home-owners may not be able to take out a buy-to-let mortgage as lenders often require borrowers to repay the whole loan back before they retire.
Though the rules aren’t set to be implemented until March 2016, it is important that you plan your finances in advance by using the help of a professional mortgage adviser.
Helen Little is from Tiffen & Co, Mortgage Advice Bureau – for further information
Call: 01288 510553
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.