To comply with more EU rules, the government is going to introduce new legislation for a section of the buy-to-let market to follow Brussels' mortgage credit directive.

The Treasury has just published a consultation on the EU's directive and within it has stated that "accidental landlords" must be controlled.

The term "accidental landlord" is used for people who apply for mortgages or acquire properties not to rent out, but through varying circumstances decide to.

Types of cases when people would fall under the proposed regulations, would be if a property was passed on in an inheritance and when a person is unable sell a property and instead decides to rent it out.

From March 2016 all new loans will be subject to the new regulations to fall in line with EU's date of implementation.

Those who borrow money to buy a property stating that it will be rented out and in effect a business venture, will still be unregulated.

The CML (Council of Mortgage Lenders) was expecting that the EU would not impose regulatory restrictions, however those hopes were dashed by the Treasury's announcement.
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CML director general Paul Smee says: “With the mortgage market review out of the way, we now enter round two of regulatory change as a result of the European mortgage directive. We are hopeful that most of the impact should be modest, as much of it was anticipated and helpfully built in to the new rules in the first place.

“It is frustrating though that, despite earlier assurances, the buy-to-let position turns out not to have been adequately resolved, resulting in a new proposal for regulating part of the buy-to-let mortgage market. The regulatory regime now being proposed is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met.”

Paul Broadhead, the Building Societies Association head of mortgage policy said: “It is clear that this Directive will add cost and complexity to the mortgage process, with no discernible consumer benefit. I am pleased that the Government is taking a pragmatic approach to implement the minimum requirements to achieve compliance.

”However, we cannot get away from the potential for further disruption and consumer confusion, so soon after the implementation of the MMR and well before its impact has been fully analysed.”

 

The Intermediary Mortgage Lenders Association is having ongoing discussions with the CML on exactly how the EU Directive will be introduced into the UK.

Charles Haresnape, the Chairman of the Association said: “We are looking at what a voluntary code on buy-to-let looks like. There is an opt-out from the EU directive for buy-to-let which was negotiated by the Financial Conduct Authority. It is one of those situations where you ask ‘why fix what isn’t broken?’”

In April whilst speaking at a CML lunch, the Treasury financial secretary Sajid Javid said he could not understand how in any shape or form the directive would benefit UK borrowers. He pledged to “minimise disruption” to the UK mortgage market.

Javid said: “I’m not convinced of the benefits of these regulations to UK consumers or to UK businesses.

“That’s why our approach to implementing these will be to – wherever possible – minimise the disruption they cause, which will be very much in line with our wider priority of reducing regulations on business.”