Bob Hunt is chief executive of Paradigm Mortgage Services
“Just when I thought I was out, they pull me back in” – so says Michael Corleone when talking about the mafia in The Godfather Part 3.
For some reason, and I appreciate this takes something of a flight of fancy, but I couldn’t help thinking of this line when I read the recent news re: the Treasury’s consultation paper on implementing the European Mortgage Credit Directive. The big news of course is the partial regulation of the buy-to-let market when the Directive is implemented in March 2016. Just when we thought buy-to-let had been left out of statutory regulation (partial or otherwise), the Government pulls it back in.
Judging by the responses to the consultation, few mortgage market stakeholders are dancing for joy at the news that some types of buy-to-let mortgages will now be captured under the new regulation. Whereas previously, I'd say most if not all anticipated a status quo situation for buy-to-let, or if not - then as near as damnit. Now, it would seem that the Government do not intend to achieve introduction of the Directive via voluntary mechanisms but instead have decided to introduce it through national law.
The impact is not just on ‘accidental landlords’ – those who used to live in a property but now want a buy-to-let mortgage to let it out perhaps because they have to move away or they simply can’t sell the property – although this will be considerable. But other mortgages where an owner or family member lives in part at the property, for example, a son or daughter living in a university house or where a property is bought with a tenant already in situ.
Those individuals who inherit a property and want to let it out are also impacted because it has been deemed that these people are ‘not acting in a business capacity’ which quite frankly beggars belief. I’m sure those who inherit a property and wish to let it out are looking at the business viability of a such a move just as much as those who buy a property in order to secure tenants.
Adding up the potential borrowers affected by the move to statutory regulation for these buy-to-let mortgages will mean a considerable number of future individuals are going to be impacted. Indeed, many have already wondered about the future of let-to-buy mortgages again because of the fact this is not deemed a ‘business’ decision. Not forgetting of course the time, resource and cost that lenders are now going to have to put in so as to make sure they comply with the new regulations, a real concern given we are so close to the major overhaul of MMR.
I can’t help but agree with the CML which said the regulation “is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met”. It would seem there has been something of a Government u-turn in this area and, reading between the lines of various trade body statements, the anticipation of buy-to-let being left out completely was there but has not been delivered on.
This news comes at a time when the buy-to-let sector was showing very encouraging signs and was re-emerging in strong form after the major setbacks post-Credit Crunch. The buy-to-let lending fraternity have acted particularly responsibly during the intervening years and we are a very long way from those pre-Credit Crunch irresponsible lending days which resulted in so many lenders collapsing. As the BSA pointed out these new measures “will add cost and complexity to the mortgage process” and there will be “further disruption and consumer confusion” – particularly disappointing for all given we are just getting used to the new MMR lay of the land.
While not wishing to get into a ‘European debate’ one can’t help thinking there needs to be an acknowledgment of the unique nature of an individual country’s mortgage market, particularly those that are high-functioning and complex like the UK. Prescribing a homogenous regulatory solution for the UK does not work and instead, especially in this instance, is likely to do more harm than good.
Let’s hope lenders continue to offer product ranges which cater for the type of borrower affected by this however I suspect from March 2016 they are going to come with a price penalty built in.