New European Buy To Let Directive: Splitting Landlords And Damaging Choice

The Mortgage Credit Directive (MCD) introduced by the EU is set to split landlords into two camps: professional and consumer. The split means that some cases where a property owner enters the buy to let market in a manner that is not ‘wholly or predominantly for business purposes’ risks falling into the ‘consumer’ category and being put through more stringent tests by the lender and facing tougher lending criteria.

Mortgage Introducer seem to believe that a simple disclaimer may be enough to allow would be landlords to skirt the consumer protection, and gain access to business buy to let rates and products. However, that seems unlikely given the government’s consistent crack down on the casual buy to let investor in recent months, including the increased tax burden they now face.

If we examine situations where a borrower may fall under the ‘consumer’ definition of the MCD some worrying, and potentially pointless distortions occur. A property owner who inherits a property may be considered, under the UK governments’ interpretation of the MCD, to be an ‘accidental landlord’ if they choose to rent it out and therefore require consumer protection. Landlords who rent their property out after having lived there will also be captured under that definition.

The truth is that it’s farcical to consider that the owner’s decision to rent those properties out rather than sell them is anything other than a business decision. However, if those borrowers were unable to access a product because they didn’t meet the tougher criteria, they could simply sell the properties and buy another one (assuming they met the regular ‘business’ buy to let criteria). We end up in the same place, a borrower who owns their house, and also owns some other property that they rent out. It just isn’t the one they lived in ever or inherited anymore.

I’ll warrant that, sure, being prepared to sell it and buy another property is surely a sign that they are a determined business buy to let investor, but putting people through that kind of unnecessary step to end up in basically the same position but with a different product and a different level of regulatory protection is a clear sign of ill thought out legislation. Perhaps not a surprise given that it has emanated from the EU on the back of a debate that has raged since 2003.

Image: By Cédric Puisney (Own work) [GFDL, CC-BY-SA-3.0 or CC BY-SA 2.0 fr], via Wikimedia Commons