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.