On the 21st March the Mortgage Credit Directive (MCD) will come into force across the EU. It will affect the regulation of first and second charge mortgages and Consumer Buy to Let (CBTL) activity, which will fall under the regulation of the Financial Conduct Authority (FCA)1. Currently, Buy to Let lending is not regulated, however, with these new measures some lenders and borrowers will face tighter regulation2.
It is important to differentiate between Consumer Buy to Let (CBTL) and Business Buy to Let (BBTL) mortgages. BBTL mortgages, which are the most common, cover those who only intend to rent their property3.
CBTL mortgages, which will be most impacted, covers borrowing for properties which the owner intends to live in at some point. Many are ‘accidental landlords’. They may have inherited a property and will use it as either a residential or Buy to Let property. Alternatively their property may fall under Let to Buy4.
For business lenders, administrators and brokers the new legislation means that to carry out second charge mortgages they must be authorised by the FCA and hold the correct mortgage permissions5. Additionally they must ensure that they:
- Provide an adequate explanation of a product’s essential features
- Issue a binding offer
- Provide a seven day reflection period
- Give customers a European Standardised Information Sheet (ESIS) disclosure document6
For some borrowers the MCD changes could be considerable. All CBTL mortgage applications will be subject to affordability checks i.e. all applicants must be able to keep up repayments if the interest rate rises by 3%. For some consumers this means these mortgages will become out of reach.
However, there are also benefits for CBTL consumers. The Mortgage Credit Directive measures aim to foster a single market for mortgages and protect the consumer7. They will be better educated about their borrowing and will receive greater protection from the FCA. Mortgage holders will also have the right to repay their mortgage early, either partially or in full8.
largemortgageloans.com delivers truly independent and bespoke solutions, providing proactive advice while dealing with all aspects of our clients’ circumstances. We are fully authorised to handle second charge loans and CBTL mortgages. If you are looking to take out a Buy to Let mortgage, please contact us on 020 7519 4985.