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Concern for potential impact of buy-to-let regulation

Tenant referencing and eviction firm Landlord Assist, is concerned at plans to regulate part of the buy-to-let mortgage market at a time when there is a desperate need for more rental accommodation to satisfy growing demand.

As part of the Government’s plans to adhere to the European Mortgage Credit Directive certain types of landlord mortgages will face tougher regulation from 2016.
It is expected that this will include mortgages taken out by so-called ‘accidental landlords’ – borrowers that have previously lived in a property but have decided to let it out due to an inability to sell it.

Graham Kinnear, Managing Director at Landlord Assist says: “Aside from the confusion that may be caused by regulating just part of a market under European Mortgage Credit Directive, we are concerned that such changes could result in fewer people entering the buy-to-let marketplace and therefore there could be a continued shortage of accommodation in the private rented sector.”

The distinction between whether a mortgage is regulated or not under the new framework lies in whether a ‘landlord’ is running a business or whether they are a deemed to be a ‘consumer’.

If the property is the borrower’s main dwelling and they elect to rent it rather than selling it, they are likely to be defined as a ‘consumer’ and therefore the mortgage market for that person would be regulated.

A landlord who purchases property with the sole intention of letting it out is viewed as making a more commercial decision of investment and therefore that mortgage loan is less likely to be regulated.

Graham Kinnear believes that many pensioners who considered withdrawing their pensions and investing it in property may have to rethink their strategy.

He adds: “It was anticipated earlier this year that pension reforms from April 2015, which will allow pensioners aged 55 and over to withdraw their pension pot and do with it as they like, would result in many turning to property investment to generate an income from a rental yield that outweighs savings rates.

“Under the new directive these loans could potentially fall under the new regulation and the loan applications may be declined on the basis of the applicants’ age or lack of a repayment vehicle.”

Stephen Parry, Commercial Director at Landlord Assist adds: “We want to see an environment which logistically encourages landlords into buy-to-let and gives them a tax advantage in continuing to invest in their properties. If this can be achieved then tenants will have more choice, prices will be better regulated by a better demand and supply balance and those who invest in property should see a sound investment which, over time, should perform ahead of inflation.”

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