Buy to let mortgage lenders are so desperate to keep landlords loans outside the sweeping new European mortgage credit directive that they have hastily drawn up and issued a voluntary code of practice.
Within days of The Treasury revealing buy to let lending for accidental landlords would come under the directive, trade body the Council of Mortgage Lenders (CML) has put together a responsible buy to let lending code.
The new European directive says landlords who are letting a property to buy or rent elsewhere should not be considered professional investors and need financial and legal safeguards.
These lending rules would not apply to the majority of landlords.
The CML code is voluntary and not binding on lenders, but all that belong to the body are expected to adopt the principles.
The code is expected to cover:
- Treating customers fairly
- Giving clear financial and legal information about their loans to customers
- Carrying out an affordability test that accounts for possible interest rate rises, rent voids and arrears, especially if the borrower has a poor credit history
- Obtaining a declaration from landlords that they are running a business and understand their legal obligations to tenants
The code pre-empts a consultation on proposals for putting the directive into practise.
“We hope that its impact on buy to let will be limited, mainly affecting proposals for the register of firms that will operate in the sector,” said a CML spokesman.
“We are disappointed by the Treasury’s proposal to implement the European mortgage credit directive by introducing regulation that would affect a small section of the buy to let market. It is not the number of borrowers affected, but the complexity of the proposals that causes concern for lenders.
“We are, however, pressing ahead with our own plans to publish a statement of practice covering buy to let.”
The directive must be implemented by March 2016.