Crackdown on accidental landlords with 2016 EU regulation


Homeowners could find it harder to become accidental landlords within the next couple of years following new European legislation.

Landlords legal expenses insuranceMany UK landlords end up letting out a property which was originally purchased with a mainstream mortgage – usually as result of change of circumstances such as relocation or failure to sell.

Now the Treasury has confirmed that a new European Mortgage Credit Directive, which comes into force in 2016,  will result in some landlord mortgages requiring regulation, which could prevent them from becoming landlords.

Currently, buy-to-let mortgages are non regulated because landlords are usually viewed as business borrowers requiring less supervision.

Tougher rules will now come into force for those with regular mortgages as they are reviewed as consumers, and the regulations lenders must abide by were tightened up this April by the Financial Conduct Authority.

In the Treasury document seen by This is Money, it said: “For the majority of buy-to-let transactions, the borrower is making an active decision to become a landlord, an activity for which they will receive an income and for which they will be taxed as a business.

“There are some situations where borrowers do not seem to be acting in a business capacity. The Government’s view is that such borrowers are consumers and would need to be covered by an appropriate framework.”

The report also says that instances where regulation is needed will be a ‘small proportion’ of the total buy-to-let transactions.

Treasury documents show in 2013, 151,000 buy-to-let mortgages were taken out for house purchase or remortaging, making up 12 per cent of total lending.

Numbers are significantly higher than the trough in buy-to-let lending that the UK experienced after the financial crisis, where some lenders closed their doors to new business.

However, it is still below the peak of buy-to-let lending in 2007 where 339,000 mortgages were taken out for buy-to-let purposes.

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