A survey by Direct Line for Business has revealed that 55% of today’s buy-to-let mortgage applicants are unaware of the changes that are almost upon us, with accidental landlords the least likely to be well informed.
One of the most significant changes is the EU’s Mortgage Credit Directive, which could have a serious impact on their ability to secure a mortgage at all.
The regulations have created a European-wide set of standards for the BTL mortgage market, and was been designed to ensure that borrowers will be better informed, fully understand the risks of products they are signing up for, and are buying a product that best suits their needs.
These changes come soon after Chancellor George Osborne’s announcement in October 2015 that he has placed strict affordability rules on buy-to–let lending, making it harder for landlords to secure high loan-to-value mortgages.
Late last year, Osborne granted the Bank of England ‘additional powers’ over buy-to-let mortgages, which has brought them in line with residential mortgages. In 2014, changes were introduced by the Bank of England’s Financial Policy Committee, which stated that no more than 15 percent of residential mortgages were to be allocated to people borrowing more than 4.5 times their income, and that borrowers were to be subjected to more rigorous ‘stress tests’, to be sure of their ability to pay back the loans. Until now, these rules didn’t cover buy-to-let mortgages, which currently account for around a sixth of the market. That has all changed with the introduction of Chancellor George Osborne’s affordability ruling on buy-to-let mortgages, which will see landlords having to be able to prove that they can afford to pay the mortgage in full from their earnings or savings, without the help of rental income that subsequently comes from the mortgaged property.
In addition to making it harder for many to secure a mortgage at all, for accidental landlords who already have a mortgaged property, changes to tax relief, due to be phased in from April 2017 are also a major concern – and for many a real grey area.
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