Changes to the mortgage market currently being debated in Brussels stand to have a major impact on that most loved of British institutions, the Buy-to-Let mortgage, if they come into force in 2013 as is being mooted.
The main points of the EU Draft directive on Credit Agreements Relating to Residential Property are:
- Buy To Let mortgages should to be regulated similar to other mortgages. Currently a Buy To Let is viewed as a commercial transaction and therefore not subject to the rigorous regulations of the mainstream residential mortgages.
- When determining affordability for a Buy to Let mortgage, the Borrower will not be allow to include the rental income of the property meaning a Buy to Let landlord will have to have a separate income with which to justify their mortgage
It’s that second point that could have most impact. Without a Buy to Let bid in the UK housing market it is fair to say that property prices would not be as robust as they otherwise might be. Indeed, detractors from this particular change touted by the Directive would even go so far as to say that if this change comes in we will see a significant drop in house prices as the Buy to Let bid evaporates and existing landlords have to firsale thier properties when they are unable to remortgage them. Given that the very thought of a house rice drop is both socially and politically unpalatable in the UK, it is fair to expect some resistance from the UK’s elected representatives in Europe to this move and at the moment the cause is being championed by the Council of Mortgage Lenders who are suggesting that the UK Buy to Let market be exempt from the legislation.
There are a number of sides to this debate. On one hand we have to encourage the responsible lending ethos that this Directive is trying to encourage, though perhaps the method being used to achieve this could be descried as akin to “using a sledgehammer to crack a walnut” – there are other ways to achieve the same result by simply regulating other criteria such as rental-to-interest ratios. Also while the thought of a house price fall is sure to send the printing presses of the Daily Mail into meltdown, an argument could be made – often on a slow news day by that very same paper when short of something else to complain about – that house prices are too high now anyway and becoming increasingly unaffordable, especially for so-called “essential workers” of the health and rescue services. The reality though is that while everyone talks a good game on the fact that house prices for essential workers and young first time Buyers should be lower, they actually mean everyone else’s house price, not their own!
Whatever the merits of the debate the FSA seem to be in favour of regulating the Buy to Let mortgage market in the UK so it does seem some change almost certainly will come. Only time will tell what exact for that will take.
