Mortgages  

CML warns buy-to-let choice will narrow next year

CML warns buy-to-let choice will narrow next year

The Council of Mortgage Lenders has warned the Mortgage Credit Directive plus changes to landlord taxation could have “cumulative, unintended and perhaps damaging consequences.”

In the Council of Mortgage Lenders latest news update the trade body stated lenders accept regulatory authorities must have the right tools to address any macro-prudential risks but urged the government and other authorities to consider the effects of uncertainty on the market.

The newsletter stated: “The UK government has consistently recognised a distinction between owner-occupiers, who are protected by the Financial Conduct Authority’s (FCA) mortgage rules, and investors who use buy-to-let mortgages to finance their business activity in the private rented sector.

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“When the mortgage credit directive was first proposed, the UK therefore successfully negotiated an opt-out for loans to buy rental properties.

“But in considering how the directive should be implemented in the UK, the government felt compelled to extend regulation to cover a small proportion of borrowers with buy-to-let mortgages.

“Its intention was capture those who are ‘incidental landlords’, perhaps because they rent out a property that they may have inherited or that they used to live in but now rent to someone else, having bought a new home.”

The directive comes into effect on 21 March next year, when new consumer buy-to-let loans will be supervised by the FCA.

From that date, the onus will be on firms to ensure both that they comply with the directive, and that they identify those buy-to-let borrowers to whom it should apply.

At this stage, the CML pointed out it is not clear exactly how many mortgages should be designated as “consumer” buy-to-let although HM Treasury has estimated that 11 per cent of existing buy-to-let mortgages may fall into this category.

The newsletter stated: “It is also unclear how the directive will affect the market, or consumer choice.

“It is possible that some lenders, particularly small and medium-sized firms, may be cautious about offering consumer buy-to-let mortgages.

“One consequence may therefore be that “consumers” wanting to take out buy-to-let loans will have a narrower choice in the market, particularly in the short term.”

According to the CML, the recovery has seen annual buy-to-let lending expand to £27bn last year from a low point in which it totalled £9bn in 2009.

It is currently running at an annual rate of about £33bn.

At a CML conference earlier this year Matthew Browne, the head of the mortgages unit at HM Treasury, said it was planning to set out its proposals for macro-prudential regulation in a consultation document, to be published later this autumn.

The document may propose that the FPC should have powers to limit loan-to-value or debt-to-income ratios – although it could also choose other options.

emma.hughes@ft.com