Mortgage Credit Directive to make distinction between professional and ‘accidental’ landlords

The new Mortgage Credit Directive (MCD), which is due to come into play as from the 21 March, will distinguish between professional landlords, who take out buy to let mortgages for business gain, and ‘accidental’ landlords who have taken a loan out on a rental property but not “wholly or predominately for the purpose of a business.”

The Council of Mortgage Lenders (CML) explains the introduction of the ‘consumer’ buy to let mortgage in its latest report, published this month.

So far, buy to let mortgages have not been subject to conduct regulation in the UK because they are used to finance investments by landlords who purchase properties as part of a business venture.

Therefore, these mortgages have been regarded as significantly different to residential mortgages. However, the MCD will introduce a new concept and category of lending; that of consumer buy to let loans, and these loans will be regulated.

In the new directive a distinction will be made between professional landlords, whose buy to let mortgage is part of a business venture and ‘accidental’ landlords, who apply for loans against a property which they will rent out, although not “wholly or predominately for the purpose of a business.”

The intention, says the CML, is to categorise people who find themselves letting out an inherited property or home that they have previously lived in, as ‘consumer’ buy to let borrowers and as such their loans will be regulated by the Financial Conduct Authority (FCA).

“Lenders will have to interpret this, and decide on a case-by-case basis, how to treat individual customers.

Estimates vary about the proportion of buy to let mortgages that will be “consumer” loans, but the number will be small. Most buy-to-let mortgages will be unaffected,”

said the CML.


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