What is the Mortgage Credit Directive and how it will impact some Mortgages in the UK
In essence this European Legislation has been bought in to raise standards and standardise documentation across the Member States to improve consumer protection and make cross-border trading more accessible.
The UK mortgage market has been regulated for a number of years so the transition will be relatively straight forward for mortgages on properties that you plan to live in (residential). As we approach the deadline of 21 March 2016 if it is a residential mortgage the only real difference that you may see is the reissuing of a Mortgage Illustration and/or Offer with the new wording. However, conversely buy-to-lets will be given a full make-over with affordability calculations likely to become stricter. Landlords will also be categorised as ‘Consumer’ or ‘Business’, with consumers afforded a greater degree of legislative protection and redress.
In simple terms a ‘Consumer’ Buy to Let is a borrower with NO other let properties who wishes to obtain a mortgage on a property that has either been inherited or has previously been occupied by the borrower or related person at any time. Put another way, an ‘accidental’ landlord.
This means the new status will apply to the following application types:
- Where the borrower or a family member has previously lived in the property, typically Let to Buy.
- Inherited properties.
A ‘Business’ Buy to Let is the opposite. For example, a Landlord who purposely sets out to buy properties for investment.
As with all changes there will inevitably be some teething problems but the Lenders I have spoken to have been upbeat about their ability to meet or even exceed the deadline on the production of the new documentation so hopefully things will run smoothly. I also hope that common sense on affordability checks prevail.
Author: Richard Stokes
Richard Stokes is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on on Mortgage and Insurance products.