Posted on 23 October 2015 by
If you are thinking of buying a property to rent out and need a buy to let mortgage there is a new wave of regulation coming in March next year that may make it harder for you to do so. The European Mortgage Credit Directive (MCD) is nearly upon us and it could affect you.
Currently all lenders require a rental calculation to be met for a given loan size and many lenders have a minimum income requirement. A few lenders have overall affordability criteria to be met as well. Under the MCD it is this that could change.
The Financial Conduct Authority has decided that mortgages for rental properties are for ‘business purposes’ and therefore does not regulate them as they do residential mortgages. The MCD may cause them to change their perspective to see the transaction as a consumer taking out the mortgage and not a business. That means buy to let mortgages for consumers may have to meet similar affordability checks as for main residence mortgages.
For example, Natwest Bank applies overall affordability limits based on personal income – not solely using the rental income. After March, Natwest could be joined by many more. So those on lower personal incomes may find it harder to get the loan size they need to buy a rental property.
Currently there are more buy to let mortgage products available than ever before following these new guidelines lenders might well review their policies and products with an eye on making sure they comply with any new regulations. Experience shows us that lenders are more likely to restrict lending criteria following a regulation change. So this really could be the best five months for choice of buy to let product and flexible lending criteria.
Researching the criteria surrounding buy to let mortgages on the internet can be difficult as lenders do not typically make it available, so a conversation with a mortgage broker will help you understand what will and will not work for you in securing a buy to let mortgage.
This article is for information only and does not constitute advice. Please obtain professional advice before taking out a mortgage. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
All information is correct at the time of publication.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.