Buy-to-let landlords set to suffer more regulation from the EU

by John Fitzsimons on 02 December 2011  |  17 comments
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New rules could mean buy-to-let mortgages are underwritten the same way as normal mortgages. And that would spell bad news for landlords.

If there’s one thing landlords can’t stand, it’s red tape. When the last government talked of launching a landlord register, to monitor the standards being offered by different landlords, there was uproar.

So it’s unlikely that a new directive from the European Union (EU) will go down too well with them.

The EU is pushing a draft directive on Credit Agreements Relating to Residential Property (CARRP, which as acronyms go, is pretty close to perfect). And in this directive, it makes the case that buy-to-let mortgages should be regulated in exactly the same way that traditional, owner-occupied residential mortgages are.

This is how things currently work on the continent, and it sounds like a perfectly reasonable thing to want. Why shouldn’t buy to let be monitored in exactly the same way that residential mortgages are?

Why it would hurt landlords

However, the impact of such a move would be pretty significant. When it comes to working out whether to approve a landlord for financing, a lender would no longer be able to take the anticipated rental income from the new property into account. Under this new directive, instead, the main criteria would become the prospective borrower’s earnings.

That’s all well and good with owner-occupied mortgages, but with buy to let, funding would grind to a halt pretty sharply. And that wouldn’t just hurt landlords looking to expand their portfolios – it would also reduce the likelihood of them accessing remortgaging finance. Having one investment property, let alone a whole portfolio of them, would become pretty difficult.

Flooding the market

So, we have a situation where professional landlords can’t afford their existing mortgages, or to buy new properties. Extrapolate from that and we could see landlords having to sell off chunks of their portfolios, with less demand from investors for properties on the market, and suddenly we have a flood of properties on the market, and a greatly reduced number of people in a position to buy.

In theory, that would lead to falling house prices, something many people are desperate to see (and have been expecting, nay, predicting ever since the credit crunch first hit). And the idea is that once house prices fall, suddenly first-time buyers will be able to afford the properties that otherwise those mean buy-to-let investors would have snapped up.

The one hiccup there of course is just how willing the banks are going to be to lend to first-time buyers in a falling price environment, given the way they tightened up over the past few years, but in truth we won’t really know how the banks will react until (if) it happens.

What should landlords do now

The directive will be voted on in the New Year, and is currently slated to come into force in 2013, giving landlords very little breathing space.

If it’s likely to become tougher for landlords to access finance in the future, it makes sense for them to review their current mortgage situation and see whether they can remortgage to a better deal, or at least lock in to a competitive rate for a decent period.

Below, I’ve put together a collection of some of the most competitive mortgages around at the moment. However, the best way to keep on top of developments in the buy-to-let mortgage market, and the varying lending criteria employed by different lenders, is to make use of a decent mortgage broker.

You can pick the brains of our fee-free mortgage team over the phone, by email or even via instant messenger. Just head over to our mortgage centre.

14 blinding buy-to-let mortgages

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