EU tells accidental landlords they "can't afford" cheaper mortgages

EU tells accidental landlords they

A little-known piece of EU legislation could see so-called accidental landlords refused cheaper mortgages - because they can't afford them.

The EU Mortgage Credit Directive, which comes into effect in the UK this month, is designed to prevent ‘risky’ mortgage lending and redefines landlord mortgages as “consumer lending”, making them subject to stricter lending criteria.

The directive introduces new mortgage affordability checks for lenders designed to ensure borrowers can afford their repayments - not just at their initial rate but also if rates were 6-7% higher.  

The same rules will apply for those who are remortgaging too, meaning home-owners  switching mortgage deals to take advantage of lower rates could be told that they are unable to afford repayments cheaper than those they are currently making.

The move is likely to particularly effect so-called ‘accidental landlords’ – people who did not buy a property with the intention of renting it out, but who have been forced to do so by circumstances.

Research from Direct Line has shown that 62% of new buy-to-let mortgage applicants are unaware of the changes – a figure rising to 71% for accidental landlords.


From next year changes to mortgage tax relief will also mean landlords are no longer be able to claim tax relief on mortgage repayments. Instead of deducting mortgage interest repayments from their tax  bill they will instead receive a tax credit equivalent to 20% basic-rate tax on the amount – meaning that should interest rates rise some landlords could end up paying tax on losses.

Ajay Jagota, founder and Managing Director of North-East based sales and lettings firm KIS commented: “It sounds completely ludicrous for lenders to deny people cheaper mortgages because they can’t afford them, and there’s a good reason for that – it is completely ludicrous.

There is no question that this directive will create mortgage prisoners, people stuck overpaying on loans at a time when mortgage rates could be falling to their lowest ever levels.

Literally anyone can end up an accidental landlord – through inheritance, through family breakdown or through having to relocate for work. Most of the time they have no ambition other than to cover their costs until their circumstances change and there’s a real risk that they might have to raise their rents just to cover those costs.

Lenders should have the right to waive the affordability criteria when they’re remortgaging if there’s no increase in borrowing. If nothing else, this directive seems to fly in the face of EU’s commitment to a free market by denying people access to the full range of financial products available to them.”

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Latest Comments

Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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