New rules regulating buy to let for accidental landlords have been published by the Treasury.
The rules form part of the European Union Mortgage Credit Directive that mainly relates to residential home loans – but the British government has unexpectedly slipped in a new category of buy to let borrower that will be covered by the regulations.
Buy to let will become a two-tier market –
- Accidental landlords who have lived in the buy to let home they are mortgaging will be subject to regulation, which mainly means lenders will have to undertake an affordability test based on their personal income
- Professional landlords must pledge not to live in a buy to let property, and if they buy for business purposes, will have affordability based on the current rent cover rules.
The new rules are partly aimed at dealing with mortgage fraud termed ‘gaming’, which is when a homebuyer applies for a buy to let loan then moves into the property because they fail stricter residential mortgage affordability tests.
Industry experts already claim buy to let lenders check electoral rolls for homes with new buy to let mortgages to check the borrower has not moved in.
Also as part of the mortgage shake-up, the Financial Conduct Authority (FCA) will publish a directory of authorised buy to let mortgage lenders.
This directory should be public, which means brokers will not be able to shield providers from borrowers.
The draft regulations still have to go before MPs for approval, and are expected to come into force from March 2016.
“The directive introduces a new set of regulations for buy-to-let lending, where the lending is to consumers rather than for business purposes. This is not expected to affect the vast majority of buy-to-let mortgages which is done for business purposes and is therefore not subject to the directive,” said a Treasury spokesman.
The Treasury reckons around 11% of buy-to-let mortgages fall within the new affordability net – affecting 18000 mortgages a year worth £2.4 billion.
The spokesman also explained that the government is also bringing second charge mortgages under regulation for residential borrowers.
New Rules Regulating Buy to Let for Accidental Landlords have been Published by the Treasury. – http://t.co/5O6fOYQVPh
— LandlordZONE (@LandlordZONE) January 27, 2015