Introduction of the Mortgage Credit Directive

In the lead up to the introduction of the Mortgage Credit Directive (MCD) there was much speculation as to which clients would be affected and how the lenders would react.

A simple view of MCD would be - if a client is looking to move out of their existing main residence, and has no other BTL properties, they would be considered an accidental landlord and the loan underwritten as a Consumer BTL lending.  Similarly, if they wish to raise funds on a property they had inherited, again they would fall under the MCD catchment rules and be treated as Consumer BTL lending.

What was not so clear, was the lenders stance generally towards such cases.

Over the past few months we have been researching information available from lenders websites. 

The typical lender answer is:-

“This applies to clients who have inherited a property and who are 'accidental landlords' or if the client or close relative has ever lived in the property. It applies to remortgages only and if the client has no other BTLs”.

The important point here is “the client or close relative has ever lived in the property”.

Even the likes of Together Money and Castle Trust, who are considered more accommodating in mortgage lending, are unwilling to consider if the client has lived in the subject property – ever.

But this poses a potential issue.  Whilst lenders application forms ask for a client’s three years residential history, they don’t appear to ask the question “if the client has ever lived in the property”. 

The lenders application may also ask if the client is living in the property now or will do so in the future. Consequently, once a client has moved out of their former home and let it for more than three years, it is not necessarily evident that they used to live in the property to be remortgaged.

Once the lenders realise that they are not capturing every Consumer BTL application it may result in further changes down the line. Clearly additional work will need to be undertaken to build a better profile as to how lenders will react to such applications. 

So who will consider lending on a client’s former main residence and under what circumstances.

Whilst investigating this issue, it has become clear that the majority of lenders only view such cases as Consumer BTL lending, if it is a remortgage.

Due to the recent changes in tax, lending to SPV limited companies is seen in a more positive light.  As a result, there may be occasions where an applicant may wish to sell a property they own personally, to their existing or newly created SPV company.  Of course there are stamp duty and potential Capital Gains Tax liabilities, but providing the client gets appropriate guidance from a qualified professional, the sale to the company may be a viable option for some.

As these applications would be processed as purchases Keystone Property Finance could potentially entertain such applications too.

Of course not all lenders will consider related transactions or lending to limited companies, but you may wish to explore the options as to who may consider.

This is clearly a moveable subject and I suspect other lenders have not fully explored all the options - Yet.


You might also like to read:

What is a consumer buy to let mortgage?

FAQ: Can you explain what the MCD means for me as a borrower come March 21st 2016? 

UK lenders lead the way in implementing new EU directive 


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