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.”

Join our mailing list:

Leave a comment



Our Next Event

Buy-to-Let Roadshow April 2017

Buy-to-Let Roadshow April 2017

Crewe - 18/04/2017

Northampton - 19/04/2017

Essex - 20/04/2017

Brighton - 21/04/2017

Register now

Latest Comments

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

view article
ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

view article
NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

view article
Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

view article
Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

view article
Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

view article
Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

view article
James Powell
James Powell 27 Feb 2017

This is a very good news.

view article
DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

view article
Matt
Matt 20 Feb 2017

Is this fake news?

view article
Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

view article
CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

view article

Related stories

More articles from Landlords

Buy-to-Let Roadshow
April 2017

18th-21st April

4 days
7 specialists
4 locations
Free to attend

Click here to register now