As reported in the property trade title
Property Drum the proposed EU regulation on mortgages, designed to combat
fraud, which is due to be voted on early in 2012, could change the way some
buy-to-let lending is regulated to bring it into line with rules governing
conventional residential mortgages.
Critics are expressing fears that the new
rules could seriously reduce the number of buy to let mortgages that are
granted. This is because lenders would be required to test affordability using
standard residential mortgage criteria: relative size of deposit, existing
income, other debts, but they would not be able to include potential rental
income, meaning that a landlord investor would have to be able to afford to pay
the mortgage on the property without receiving any income from it.
Everyone will appreciate the need to reduce
fraud but is this yet another hammer to crack a nut? In a country populated by
large numbers of frustrated first-time buyers forced into the private rented
sector, high rents with longer tenancies, low property purchase prices and
better returns than other investment opportunities, the buy to let sector is
growing, and the number of mortgages servicing it is growing too.
In the third quarter, buy-to-let lending as a
proportion of total lending hit its highest level in three years, jumping 16
per cent in value. According to one lender, 10 per cent of its applications
last year were from prospective landlords. This year, the proportion reached 80
per cent. A spokesperson for Lloyds recently forecast 20 per cent growth in the
buy-to-let mortgage market in 2012.
Of course, this situation is rather different
in many EU countries, where most people have always rented and the change from
aspiration to home ownership to reconciled to long term renting is not an
issue, and there are many more properties available to rent.
But in the UK, where buy to let is one of the
few areas of the property business that is doing well, heavy handed EU
legislation could affect our rental housings stocks far more dramatically than
in other countries.
If the new legislation is passed, potential
new investors and landlords wanting to develop their portfolios, and / or
remortgage current assets, should get a plan underway soon; the new rules would
take effect from 2013. At least an increase in activity in the short term would
be good for the market; if 50 per cent of the estimated 1.4 million landlords
in the UK
