EU Mortgage Proposals for Accidental Landlords

David Lawrenson of LettingFocus.com thinks the latest EU proposal for mortgages which will affect accidental landlords is nonsensical.

EU Mortgage Proposals for Accidental Landlords

As you may know. buy-to-let mortgages are currently not regulated, unlike mainstream residential mortgages. The thinking is that landlords are “business” borrowers – and being such clever people, they therefore need less supervision. (Obviously, whoever made this distinction never attended a “Get-Rich-Quick-In-Buy-to-Let-Seminar”)

By contrast, tougher rules and also more scrutiny about loan affordability face those with a residential mortgage – who are seen as “consumers” in the current regime.

One useful aspect of this distinction is that older people can more easily obtain buy to let mortgages. The age limits are less onerous (at least they are from the smarter lenders) – and it also means lenders do not have to apply strict personal affordability criteria.

Indeed, once the new rules on pensions come in, in April next year, we will no doubt see lots more grey haired landlords make use of the new freedoms to take cash out of their pensions and invest in residential property.

EU Proposals for Landlords

However, from 2016, and as a result of EU rules being proposed, lenders may have to start refusing to lend to homeowners who simply want to hold onto their existing mortgage and who would be happy to pay a small premium to let their property (consent to let), or switch to a buy-to-let rate. People may want to do this, if they have to work abroad for a time, for instance.

Like many property experts, we think this EU proposal is bonkers and not based on any evidence of a need for additional consumer protection, but purely to ensure that the European legal requirements are met.

In particular, regulating some buy-to-let loans but not others will just add more cost and confusion for lenders, brokers and borrowers.

Tough Rules Already Exist, So Why Make More?

Buy to let mortgage lenders are already supposed to have tough regimes in place to prevent what is called “gaming” – an example of which would be where a borrower tries to get around the new affordability rules introduced in the mortgage market review (MMR) by applying for a buy to let loan, and then living in the property, in breach of the terms of the buy to let mortgage.

How well their checks to prevent gaming actually work in practice is anyone’s guess, of course.

My own guess is that they probably don’t work very well, that lenders know lots of gaming is going on, but probably don’t care as long as the mortgage is being paid.

West Bromwich Building Society

As a corollary of this story, we note that when West Bromwich Building Society (WBBS) and other lenders implemented their rate hikes on lifetime base rate tracker mortgages, (in what we think was a clear breach of the mortgage terms and conditions), viagra online online pharmacy they apparently only targeted borrowers with three or more properties.

They knew of course, that even the rather pathetic regulator may have had an issue if they had done that with folks who might be regarded as “accidental landlords” who could possibly be more likely to be regarded as “consumers” and hence, more protected.

When the case against WBBS comes to the high court, we think they will have a very keen eye on making the distinction between consumers and borrowers. (For more on the action go to the website Property118).

If these new EU rules come into force, and if somehow the West Bromwich Building Society win the coming court case, then the West Brom and other lender will surely waste no time going after the landlords with less than three properties – and hiking their “lifetime” tracker rates too.

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