New laws have been passed by Europe which tighten up the regulations surrounding buy-to-let mortgages and make it harder for would-be landlords to obtain loans. Tens of thousands could find they are newly ineligible to take out a buy-to-let mortgage, and many other borrowers will have to pay more than they would previously have done.
The changes will have to take place by March 2016 at the latest. It is expected that they will place further strain on a housing market that has already been weakened by other changes to mortgage rules. September has seen zero growth in the British property market, according to data from Hometrack – the first time this has happened for more than a year and a half.
The changes are designed to affect “accidental landlords,” and change the ways in which they are able to obtain credit. This category includes those who let after failing to secure a sale, for example, or those who let a property that they have inherited. These are cases where, as a document from the Treasury put it, the borrower finds themselves in the position of landlord “as a result of circumstance rather than through their own active business decision.” It is thought that these “accidental landlords” could represent up to one in five current buy-to-let mortgage holders.
The introduction of tough affordability checks could also affect older landlords who wish to supplement their upcoming retirement income through letting a property. This is because lenders often stipulate that borrowers must be on-track to repay the full amount prior to retirement.
To obtain a “regular,” home-buyer’s mortgage, borrowers have to go through strict checks to ensure that they will be able to afford their mortgage not only in the short term but also in the event of future rate-rises. To establish this, lenders assess both their income and their outgoings in-depth. Previously, much of the regulation surrounding these mortgages and affordability checks has not applied to buy-to-let mortgages, but under the new system a much stricter framework will be imposed that is more in line with the mainstream mortgage system.
There are currently around 1.6 million holders of buy-to-let mortgages in the UK, and 151,000 new buy-to-let mortgages were taken out last year.
A number of experts have expressed concerns over the impact of the new rules. Speaking about what constitutes an “accidental landlord,” Rosanna Bryant, a partner at Addleshaw Goddard, said “The line that is drawn isn’t that obvious.”
Finance and Leasing Association head of consumer finance Fiona Hoyle expressed concerns about the speed with which lenders would have to implement the changes.
“Firms will only have nine months to get to grips with it, and that’s not really how mortgage lending works – there is a pipeline.”