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Buy to lenders apply stricter borrowing rules
19 October 2015
Some lenders are already imposing restrictions that limit borrowing for a new class of consumer landlords.
The measures are part of the European Mortgage Credit Directive which is due to start on March 21, 2016.
However, trade body the Council of Mortgage Lenders says some buy to let lenders have started following the directive which works out borrowing based on affordability rather than rental income for around one in 10 property investors.
The government has split the buy to let market under the directive between professional investors and accidental landlords.
Professional landlords are unaffected by the rules if they are buying homes to let as part of a business and obey restrictions that stop them or their families living in the properties.
Consumer landlords are typically homeowners who have let their former main residence to move on, inherited a property or have a single buy to let.
The directive means that their mortgage affordability is based on their disposable income rather than any rent a letting property generates.
This makes raising finance for them much harder.
“It is unclear how the directive will affect the market, or consumer choice,” said a Council of Mortgage Lenders spokesman.
“It is possible that some lenders, particularly small and medium-sized firms, may be cautious about offering consumer buy-to-let mortgages.
“One consequence may be that consumers wanting to take out buy to let loans will have a narrower choice in the market, particularly in the short term.”
The government and lenders are concerned that consumer landlords may take out a buy to let loan on a home and move in because they would fail stricter affordability tests for a residential mortgage.
The buy to let mortgage market in the UK means property investors are treated differently than in other European Union countries, where renting homes is led by institutional rather than individual financing.