Despite widespread opposition from the industry the European Commission (EC) have recently published proposals for EU legislation on the provision of mortgage credit. The draft "Credit Agreements Relating to Residential Property" (CARRP) will have it's first reading in committee at the European parliament this Wednesday (April 25, 2012.)
[ UPDATED: The mortgage directive was planned for its first vote before Christmas 2011, but disagreements and amendments further delayed the vote until February and then this April.
The vote has now been further delayed by another two weeks or so, as nearly 1,000 amendments have left politicians unable to agree AGAIN! ]
The objectives in the field of mortgage credit are:
- to create an efficient and competitive single market for consumers, creditors and credit intermediaries with a high level of consumer protection,
- to promote financial stability by ensuring that mortgage credit markets operate in a responsible manner.
The proposal seeks to do this in several ways, including:
- by fostering consumer confidence and customer mobility,
- creating a level playing field for operators and
- promoting cross-border activity by creditors and credit intermediaries.
Under the draft directive on CARRP, Britain would be forced to fall into line with the continental practice whereby lenders assess buy-to-let in the same way as mortgage applications by owner occupiers on their prime residence.
Which basically means that the main lending criteria would be the borrower’s earnings.
The Council of Mortgage Lenders and the Association of Mortgage Intermediaries, who speak for brokers, strongly oppose the proposals; both arguing that buy-to-let in the UK operates as commercial borrowing and should continue to be assessed in this manner. Other critics also believe that lenders should continue to assess a landlord purchaser’s credit worthiness by looking at rental income, rather than what the borrower earns.
The second and final reading of the directive is predicted to be taking place in September of this year, with provisions generally adopted in to law around 12 months later.
We would love to hear your views on this!
Save the buy-to-let mortgage HERE.
As I think has been mentioned this directive will effectively destroy the BTL marktet overnight for the samll LL.
Only high income individuals or institutions who can borrow commercially will be able to engage in purchasing rental property.
This regulation is the death knell of the small private LL.
There will be LL possibly bankrupted by this as they will be unable to remortgage if they were relying on doing so to manage their portfolio.
There will be BTL which will not be able to be remortgaged as under the new criteria LL could not raise the required amounts.
Small LL should be looking to remortgage now such that they do not need to remortgage ever again.
I would suggest go for a BOE tracker rate for the next 25 years.
Small LL will effectively become zombie LL; not able to remortgage on their increased portfolio equity, but just sitting on the property raking in hopefully rental income.
They will see an increased return on their capital invested as they won't be able to reborrow.
Then in 25 years they sell.
What the 1 million new rental entrants are supposed to do, god only knows!?
This is the figure that are projected to need rental accommodation, source Citywire, I think
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