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Will Buy-To-Let Investors Be Caught Out By Eu Rules?

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http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11196110/Would-this-buy-to-let-couple-be-caught-out-by-new-EU-rules.html

Buy-to-let investors and mortgage lenders remain angered and bemused by EU legislation that could leave some owners of second properties struggling to find a loan.

European legislation will make it harder for so-called "accidental landlords" to borrow. This undefined group could include those home owners unable to sell their property or financing a house move.

Even experts are unclear over exactly who will be affected by the new European Mortgage Credit Directive, which lenders have deemed "problematic and unnecessary". The Council of Mortgage Lenders, representing the mortgage industry, made a desperate appeal this week for the Treasury and the financial regulator, the Financial Conduct Authority (FCA), to clear up the confusion.

In some cases, banks will simply turn away new investors similar to Simon and Wendy Lethem, pictured, who last month borrowed £400,000 using a buy-to-let mortgage on their flat in Wandsworth, south-west London.

Which borrowers could be caught – and what the new rules mean

Any borrower deemed a "consumer" and not a "professional" will be caught by the new legislation. But no one knows what this distinction means. According to the Treasury, consumers include borrowers who become landlords "as a result of circumstance rather than through their own active business decision". Even that is not clear. But professional landlords who derive most or all of their income from their property investments won’t be affected. These are "companies or individuals who are acting in the course of their trade, business or profession".

Currently, a buy-to-let mortgage requires that the property is not occupied at any time by the borrower or a family member.

Unlike residential mortgages, buy-to-let loans are outside the scope of FCA regulation, and do not require the strict affordability tests imposed on owner-occupier lending.

Europe has yet to disclose the scope of the rules. But there is speculation that it could be similar to new lending criteria – introduced in April – imposed on residential mortgages.

The so-called mortgage "stress test" requires banks to assess borrowers’ incomes and spending habits in forensic detail, and ensure applicants can afford repayments in the event of a rise in interest rates. Mortgage broker Ray Boulger of Charcol warned that the move would increase costs for buy-to-let borrowers and would be "the opposite of being consumer-friendly despite being positioned as a consumer initiative".

"As far as the UK is concerned, it is another example of the EU interfering in our domestic business," he said.

Are you a 'consumer' or 'professional' landlord?

Mr Lethem, an IT consultant from London, financed his city-to-country move by remortgaging and letting out his existing property. He and his wife, Wendy, wanted to keep their property in London.

The dilapidated condition of the five-bedroom Victorian house that they wanted to buy in Kent, meant the couple could not secure a mortgage against it. They would either have to sell their London property or take out a buy-to-let mortgage against it and let it. "We fell in love with [the property], but didn’t know how we would get hold of it unless we were cash buyers," Mr Lethem said.

Simon_and_Wendy_Le_3096965c.jpg

The Lethems' route into buy-to-let is at risk due to new EU rules

The Lethems could be caught by the new rules, because for years the property was their main home. This is despite their active choice to become landlords.

The Lethems opted to borrow approximately £420,000 from Clydesdale Bank, through broker Private Finance, which lent on a two-year fix at 3.39pc.

David Hollingworth, from broker London and Country, said that while it was unclear, he expected borrowers in the Lethems' case to be unaffected. "It would seem sensible for it not to be caught out by regulation but we shall have to see how boundaries are defined."

Other borrowers may also escape by declaring that they are professional and not consumer landlords. But the onus would lie on lenders to assess whether borrowers were telling the truth. Mr Hollingworth said: "Lenders may not use customer declarations, at risk of falling foul of the regulator."

Edited by fru-gal

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JEEZ!

They borrowed £400,000 . Why are they smiling. They just cannot see any downside. I think they are mad.

Because they know the government will bail them out if there are any problems. Heads I win, tails you lose.

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Buy-to-let investors and mortgage lenders remain angered and bemused by EU legislation that could leave some owners of second properties struggling to find a loan.

Most every other power is being handed over to the eu (and gaining momentum since November 1st with new voting rules in the eu) under Mr Cameron so why shouldn't that apply to BTLs and mortgages.

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The Times today has a long editorial attack on BTL in its business pages entitled "it's time that buy-to-let had to play by the same rules as the rest of us".

Cracking read - shows how government policies over the years have subsidised BTL over the years, making landlords a fortune at the expense of tax payers and tenants.

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The Times today has a long editorial attack on BTL in its business pages entitled "it's time that buy-to-let had to play by the same rules as the rest of us".

Cracking read - shows how government policies over the years have subsidised BTL over the years, making landlords a fortune at the expense of tax payers and tenants.

That's good to hear. Also, I wonder if these EU rules really are so unclear or if it is highly paid PR companies getting the stories placed to sound as if they are as vested interests (lenders and rich individuals hoovering up rent/housing benefit money) are intent on protecting their BTL income.

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JEEZ!

They borrowed £400,000 . Why are they smiling. They just cannot see any downside. I think they are mad.

Chronic complacency and entitlement and absolute belief in property and HPI.

Young professionals/families totally priced out, and higher end winners, doubling down.

There are enough excuse givers on the forum - I want to see blood.

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Because they know the government will bail them out if there are any problems. Heads I win, tails you lose.

Well this is true for the past. The future, am not so sure about! Going back thousands of years, this is what the elite do. Lend the peasants shed loads of money, knowing that probably they cannot pay it back, so then the elitist money lenders can foreclose. It's a win win situation for the thieving cheats. Got a funny feeling the banks are getting all their coconuts into a row. What is amazing is that this couple are so convinced about constant HPI.

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Well this is true for the past. The future, am not so sure about! Going back thousands of years, this is what the elite do. Lend the peasants shed loads of money, knowing that probably they cannot pay it back, so then the elitist money lenders can foreclose. It's a win win situation for the thieving cheats. Got a funny feeling the banks are getting all their coconuts into a row. What is amazing is that this couple are so convinced about constant HPI.

This is what I said to all the people getting into massive mortgages and BTL in the naughties, it's just too easy for the little people to make money at the moment, history never allows it for long. I too am wondering when the future will revert to norm...

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This is interesting. The various vested interests, principally the Council of Mortgage Lenders, thought they had this dead in the water:

While welcoming the consultation, the CML is disappointed that the Treasury has found it necessary to make a U-turn on buy-to let. Having previously believed that the UK would be able to achieve the necessary framework through voluntary mechanisms, the Government now believes that to comply with the Directive it has no choice but to impose national law on part of the buy-to-let market

Source: CML website, (emphasis added).

I think that this may be a big deal. My general feeling is that part of the ongoing lunacy in UK housing is allowing morons to make what they believe to be one-way bets, with borrowed money - i.e. BTL to so-called accidental landlords. If anyone does anything to stop the queue of new idiots getting any longer, that can only be a good thing.

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Consent To let, is also tightening up.

More lenders imposing much more stringent criteria. Amateur landlords indeed; are we all amateur tenants?

Landlords trying to take action against lenders like Northern Rock or NRAM or whatever it's calling itself these days.

http://forums.moneysavingexpert.com/showthread.php?t=4490485&page=4#

And it all stirred up a long article on a contractors website a while ago; one of these forums where self-employed contractors do their best to pay as least tax as possible, having rental properties under CTL.

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In some cases, banks will simply turn away new investors similar to Simon and Wendy Lethem, pictured, who last month borrowed £400,000 using a buy-to-let mortgage on their flat in Wandsworth, south-west London.

Property property property (HPC victim hunters = "They didn't know what they were doing.")

A look at Linkedin, and he may have his own holiday home in Greece too.

Click on the facebook banner for it, on the holiday let website, and go straight to what seems to me to be photos of the couple.

http://www.thegecko.eu/booking.htm

Domain lookup gives a London address too, but nothing much data to see on 29, SW12 8ED other than multi-decade HPI followed by "save the victims - they only wanted a home - they didn't know what they were doing" growth-reflation has been extreme... with zoopla suggesting house turned into flats and pre ultra HPI (too many ipods) purchase price a doddle to pay.

However, the bulk of the island is glorious and pretty unspoilt - utterly fabulous beaches on the west, beautiful mountains, many attractive villages, and all the simple pleasures that make (many) Greek islands such a joy. We've travelled extensively all over Greece and the islands over many years, and Lefkas may not be everybody's glass of retsina, but it's where we've chosen to build our house!

http://www.greekisland.co.uk/reviews/lefkasviews.htm

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Where are the UKIP types complainIng that the EU should stop telling Britain what to do? Vote UKIP and save the BTL house price ponzi. Come in Corruption,admit you are Ray (another example of the EU interfering in British domestic business) Boulger.

Edited by campervanman

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Talk about diversifying.

You get insane HPI and what do they do - basically double their bet!

I would guess the couple are well into their 50s and they think a good thing to do is to take on 400k (that's 8 times the gross/untaxed UK average wage) with 10-15 years left of earnings. And I'm guess that he's the main earner, so that's on a contractor who's earnings may vary somewhat.

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Update - The Mortgage Credit Directive Order 2015 comes into force over the course of this year as part of efforts to conform with the European Mortgage Credit Directive. It provides the following definition of "consumer" landlord:

4.—(1) In this Part—

“advisory services” has the meaning given by article 6;

“annual percentage rate of charge” has the meaning given by paragraph 9(6) of Schedule 2;

“buy-to-let mortgage contract” means a contract that—

(a) at the time it is entered into—
(i) meets the conditions in paragraphs (i) to (iii) of article 61(3)(a) of the Regulated Activities Order (regulated mortgage contracts); and
(ii) provides that the land subject to the mortgage cannot at any time be occupied as a dwelling by the borrower or by a related person, and is to be occupied as a dwelling on the basis of a rental agreement; or

(b ) is a regulated credit agreement within the meaning of article 60B of the Regulated Activities Order which—
(i) falls within Article 3(1)(b ) of the mortgages directive; and
(ii) provides that the land, or existing or projected building, to which it relates cannot at any time be occupied as a dwelling by the borrower or by a related person, and is to be occupied as a dwelling on the basis of a rental agreement;

“consumer” means a person acting for purposes which are outside that person’s trade, business or profession;

“consumer buy-to-let mortgage business” means one or more of the following activities—
(a) acting as a creditor;
(b ) acting as a credit intermediary; or
© providing advisory services;

“consumer buy-to-let mortgage contract” means a buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;

“consumer buy-to-let mortgage firm” means a person carrying on consumer buy-to-let mortgage business;

“credit intermediary” has the meaning given by article 5;

“creditor” means a person who, in the course of a trade, business or profession—

(a) enters into, or promises to enter into, a consumer buy-to-let mortgage contract under which the person is to provide credit, or

(b ) administers a consumer buy-to-let mortgage contract,

and for the purposes of paragraph (b ) a person administers a consumer buy-to-let mortgage contract if the person carries on the regulated activity specified by article 61(2) of the Regulated Activities Order (regulated mortgage contracts)(1) in respect of the contract, or would carry on that regulated activity in respect of the contract but for the exclusion in article 72I of that Order (registered consumer buy-to-let mortgage firms)(2);

“decision notice” means a notice that complies with the requirements of section 388 of the Act (decision notices)(3);

“foreign currency loan” means a consumer buy-to-let mortgage contract where the credit is denominated in a currency other than that in which the borrower receives the income or holds the assets from which the credit is to be repaid;

“register” means the register kept by the FCA under article 8(1);

“registered consumer buy-to-let mortgage firm” means a person who is included in the register;

“related person” has the meaning set out in article 61A of the Regulated Activities Order (mortgage contracts which are not regulated mortgage contracts)(4); and

“warning notice” means a notice that complies with the requirements of section 387 of the Act (warning notices)(5).

(2) For the purposes of this Part, if an agreement includes a declaration which—

(a)is made by the borrower, and

(b )includes—
(i)a statement that the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;
(ii)a statement that the borrower understands that the borrower will not have the benefit of the protection and remedies that would be available to the borrower under this Order if the agreement were a consumer buy-to-let mortgage contract under this Order; and
(iii)a statement that the borrower is aware that if the borrower is in any doubt as to the consequences of the agreement not being regulated by this Order, then the borrower should seek independent legal advice,

the agreement is to be presumed to have been entered into by the borrower wholly or predominantly for the purposes specified in sub-paragraph (b )(i), unless paragraph (3) applies.

(3) This paragraph applies if, when the agreement is entered into—

(a)the creditor (or, if there is more than one creditor, any of the creditors), or

(b )any person who has acted on behalf of the creditor (or, if there is more than one creditor, any of the creditors) in connection with the entering into of the agreement,

knows or has reasonable cause to suspect that the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.

(4) For the purposes of this Part, a borrower is to be regarded as entering into an agreement for the purposes of a business carried on, or intended to be carried on, by the borrower if the agreement is a buy-to-let mortgage contract and—

(a)(i)the borrower previously purchased, or is entering into the contract in order to finance the purchase by the borrower of, the land to which the agreement relates;

(ii)at the time of the purchase the borrower intended that the land would be occupied as a dwelling on the basis of a rental agreement and would not at any time be occupied as a dwelling by the borrower or by a related person, or where the borrower has not yet purchased the land the borrower has such an intention at the time of entering into the contract; and

(iii)where the borrower has purchased the land, since the time of the purchase the land has not at any time been occupied as a dwelling by the borrower or by a related person; or

(b )the borrower is the owner of land, other than the land to which the agreement relates, which is—

(i)occupied as a dwelling on the basis of a rental agreement and is not occupied as a dwelling by the borrower or by a related person; or

(ii)subject to a mortgage under a buy-to-let mortgage contract.

Edited by Neverwhere

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..seems sensible .. that is why the bubble started in this country in 1995..as' Let to Buy' during a House Price Depression ...a bubble created out of a depression had to be fool's gold ..wait and see... :rolleyes:

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I wonder how many landlords this will actually affect?

As far as I can work out it's not backdated so in terms of existing landlords maybe none? Well, apart from the ones angling for post hoc consumer protection on loans that they wouldn't have been able to access as consumers, they might end up with a few broken dreams...

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I think it will impact the people in the Telegraph article. They have taken a deliberate decision to rent out their house in London to create a revenue stream to fund their lifestyle - this is a business.

The only realistic consumer situations I can think of are:

1. I have been posted abroad by my employer for two years and want to rent my house out until I return.

2. I have had to move for work and can't sell my house (won't reduce the price!).

Both of these would probably be dealt with by a "consent to let" on the current residential mortgage.

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Article: Other borrowers may also escape by declaring that they are professional and not consumer landlords. But the onus would lie on lenders to assess whether borrowers were telling the truth.

Would have thought they are professionals - I follow Neverwhere's (and others') update info closely.

I've got a warm-ish fix back to their Wandsworth place (in article) London, 'home-turned-rental' property - .

Simon & Wendy.. (The Wendy alternative surname on Google Images looks a fair match to her photo in the article, I think, to my eyes anyway.)

http://www.192.com/atoz/people/lethem/simon/sw12/98140986/

Running more searches/company look-ups, leads back to here (although Flat 2, no.29)

http://www.zoopla.co.uk/property/29-ouseley-road/london/sw12-8ed/23270951

Only 1 property comes up on a current rental-search on RM in that postcode. A 5 bed that's just gone Let Agreed; on RM at £4,767 pcm.

http://www.rightmove.co.uk/property-to-rent/property-34372131.html

RM Sold Prices suggest it's this one.. last sold 2003 (£817,000) - (and previously £675,000 in 2001)

http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=32655534&sale=32042441&country=england

A 6 bed came to the sales market this month, that postcode, asking £1,775,000

http://www.rightmove.co.uk/property-for-sale/property-49409143.html

RM suggests (via same photos) previous sold data / 2009... when many of us were hoping for HPC...

Sale Date: 10 Aug 2009. Price Paid: £766,000

http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=46331740&sale=41874260&country=england

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I think it will impact the people in the Telegraph article. They have taken a deliberate decision to rent out their house in London to create a revenue stream to fund their lifestyle - this is a business...

Would have thought they are professionals - I follow Neverwhere's (and others') update info closely.

I've got a warm-ish fix back to their Wandsworth place (in article) London, 'home-turned-rental' property...

Bearing in mind that as far as I can tell this legislation is not backdated to existing BTL mortgages it looks like it won't affect the couple in the article at all.

However, as they had previously lived in the property if they were trying to make the same deal now they would most likely have to prove to their lender that they were operating as a business and not a consumer in order to get the same level of (unregulated, loose) credit. Should be easy enough as Exiled Canadian suggests.

From those property prices it looks like they could end up well in the hock on the BTL property. Oh well...

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EU MCD looks to have been a complete washout as far as reigning in buy-to-let credit expansion:

The government clarified that if a buy-to-let loan on a property has been bought for business purposes and for the sole purpose of letting it out, it remains unregulated. Equally, if the borrower has never lived in it and has a portfolio of properties, this remains unregulated.

Lenders can also confirm a loan is unregulated if the borrower signs a declaration saying they are acting wholly for business purposes and the provider has no reason to think this is incorrect.

Source: Mortgage Strategy - MCD: Government clarifies definition of consumer buy-to-let regulation

Also from the same January 2015 article:

An impact assessment suggests just 11% of the market, or 18,000 transactions will be affected by the consumer buy-to-let regulation changes each year.

The Building Societies Association (BSA) said ‘no significant impact is expected as a result of this legislative change.'

Consider the case of someone with a shit slave box who wants to buy a larger property but is having trouble finding a buyer at the over the top selling price suggested by the estate agent. The slave box 'owner' just approaches the buy-to-let lender who points out that if the borrower insists on turning up with a sworn affidavit that they are only taking out the loan because they want a bigger house and that they, the borrower, are convinced the rent won't cover the mortgage, then and only then, does the loan become a regulated 'consumer buy-to-let' loan. I haven't bothered looking into the details, but I think that the regulation it would then fall under is still extremely weak.

The 2014 article appears to have just been part of an attempt by vested interests to drum up a bit of anti-EU hysteria and re-frame the issue of the Credit Directive being diminished to nothing.

I could be wrong, but I think that this came to nothing so I'm presently of the opinion that there is nothing to see here.

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...I could be wrong, but I think that this came to nothing so I'm presently of the opinion that there is nothing to see here.

I generally agree. To my mind it looks like it's been constructed in such a way as to make "consumer" BTL a whole new category of lending that - because it's regulated and therefore unlikely to offer any advantages over bog standard residential lending and subsequent consent to let - next to nobody is going to want borrow or lend under. Its only real point of usefulness is that it effectively prevents the vast majority of landlords from crying "consumer protection" when the unregulated mortgages they've used to outbid everybody else with come back to bite them on the ****.

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