The Council of Mortgage Lenders has expressed disappointment that the Treasury has found it necessary to make a “U-turn” on buy-to let as the Treasury consults on how the UK will implement the requirements of the European Mortgage Credit Directive.
The government has today (5 September) launched a consultation on incorporating new European regulations on mortgage lending into UK law.
The new regulations, set out in the EU Mortgage Credit Directive, set common standards that European Union members need to meet in order to protect consumers taking out loans to buy a residential property.
While the UK already complies with most of the EU rules, legislation implementing the directive contains some changes, including: bringing the regulation of second charge mortgage lending into line with first charge mortgage lending and introducing new regulations for buy-to-let lending, where the lending is to consumers rather than for business purposes.
The Council for Mortgage Lenders expressed disappointment at this “U-turn” on buy-to-let, having previously believed that the UK would be able to achieve the necessary framework through voluntary mechanisms.
Paul Smee, CML director general, said: “It is frustrating that, despite earlier assurances, the buy-to-let position turns out not to have been adequately resolved, resulting in a new proposal for regulating part of the buy-to-let mortgage market.
“The regulatory regime now being proposed is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, stated: “It is clear that this directive will add cost and complexity to the mortgage process, with no discernible consumer benefit.
“I am pleased that the government is taking a pragmatic approach to implement the minimum requirements to achieve compliance. However, we cannot get away from the potential for further disruption and consumer confusion, so soon after the implementation of the MMR and well before its impact has been fully is analysed.”
The Treasury said it had intended to make this change for a number of years but chose to wait for these new EU rules to be implemented, in order to avoid excessive disruption to both mortgage firms and customers.
“This is not expected to affect the vast majority of buy-to-let lending which is done for business purposes and is therefore not subject to the directive,” it added.
The changes will not come into effect until March 2016, but the government is consulting now to give mortgage firms and customers as long as possible to prepare for them.
The consultation will run for 8 weeks.
