This week the government published details of the
implementation of the European Mortgage Credit Directive into the UK market.
Although the government has made significant changes to the mortgage market
already, there are some other changes to come. They are to be implemented by
March 2016 however they are been put into place now in order to give the market
as long as possible to prepare for them.
The first change is in the buy-to-let sector. Currently this
area of mortgage lending is mostly unregulated because landlords are typically
viewed as business borrowers therefore requiring less supervision. However the
new legislation means that so called ‘accidental landlords’ will be subject to
the affordability assessments as seen in the residential market. An example of
an accidental landlord is someone who may have purchased a property with a
mainstream mortgage, but due to a change in circumstances, they move away but
decide to keep the property as an investment.
The second area is for the Financial Conduct Authority (FCA)
to bring the regulation of second charge
mortgage lending more in line with first charge mortgages. The FCA believes
that there may be a risk to consumers in this area from poor sales practices
and ineffective affordability assessments.
We welcome the implementation of stricter affordability
rules in order to help protect the consumer from poor sales practices as well
as ensure that they can afford to pay back the loan. It will be interesting to
see how this impacts current lending levels as it will be difficult to identify
and evidence a professional landlord from an ‘accidental’ one.
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