Not long ago landlords had an array of dedicated financial products to choose from along with special offers created specifically to entice them to expand their property portfolios. However, recent reports have suggested that over the past few months landlords have found it increasingly difficult to have their applications approved due to regulations set out by the EU and the UK government.
Landlords in the UK are particularly angered over new EU legislation which restricts lending to “consumer” landlords including those that find themselves accidently having to let properties. Over the past few years a number of consumers have let out second homes in order to finance house moves or make income off of properties that they were unable to sell due to issues in the housing market. However, now that the property market is improving they are being targeted by new legislation which means they may no longer be able to find loans for their properties.
According to the EU, “consumer” landlords are those that become landlords “as a result of circumstance rather than through their own active business decision.” However, “professional” landlords are “companies or individuals who are acting in the course of their trade, business or profession” and will not be affected by the new rules. Naturally, it’s not just landlords who are angered over this decision but also banks and lenders who have called for the Financial Conduct Authority (FCA) to step in.
Many claim that the newly created European Mortgage Credit Directive is “problematic and unnecessary” and that there is a large amount of confusion surrounding legislation. David Hollingworth from broker London and Country said that it could even lead to lenders refusing mortgages to professional landlords, and added: “Lenders may not use customer declarations, at risk of falling foul of the regulator.”
Meanwhile, the National Landlords Association (NLA) has recently published figures claiming that over the next three months 3 in 10 landlords looking to re-mortgage their buy-to-let properties will be turned away by lenders. Furthermore, one in five landlords (approximately 300,000) have struggled to access buy-to-let lending over the past year. Carolyn Uphill, NLA chairman, said: “A significant number of landlords are having trouble accessing finance and expanding, which is a major concern because the private sector is vital in meeting the ever increasing demand on housing at the moment.
“Many landlords are frustrated as lending criteria is too prescriptive. There’s no one size fits all mortgage, and as the leading landlord association in the UK we understand that landlords need access to a range of products that meet their specific individual circumstances.” In the NLA’s report landlords were asked what they would say to lenders if they were given the opportunity, with one responding: “Mortgage lenders are becoming increasingly difficult to work with. The requirement to produce further information on income is causing delays and becoming problematic…if your income does not fit their box on criteria they say no, which wastes time and slows the process.”
Another stated: “Mortgage lenders should consider each borrower on their own merits, and not impose a blanket ban on lending to individuals earning less than £25,000, regardless of their personal circumstances. Someone who is lucky enough to have no outgoings, servicing a mortgage with personal income of £25,000 a year is more than adequate.”
Unfortunately, landlords tend to be viewed in a negative light by the EU and the UK government and are sometimes even portrayed as one of the reasons property markets in Europe have struggled over the past few years. However, the fact of the matter is that the private rental sector homed millions of people during a time where most could not afford a property of their own. Furthermore, buy-to-let lending has helped those that have become accidental landlords protect their livelihoods as well as avoid having to sell unwanted properties under-value.
Most landlords are happy to help when it comes to the UK property market as it ultimately benefits them in the long term; however these new regulations will leave thousands unable to finance their businesses regardless of whether they are “consumers” or “professionals”.