EU Directive on Buy to Let Mortgages

The EU Directive on Buy to Let Mortgages was quite big news last week.  A quick round up of the reaction to the news follows, but first a bit of background:

What is the EU Directive on Buy to Let Mortgages

EU Directive on Buy to Let Mortgages
EU Directive on Buy to Let Mortgages was set to change the UK market

The European Union has been considering a set of new rules governing the supply of consumer credit, and in particular mortgages.  As part of the consultation process the EU sent out proposals to all member states, which if adopted as-is would have seen major changes to how Buy to Let mortgages are regulated.

In essence the proposals would have required lenders to assess affordability of each individual loan without taking into account the rental income from that property.  Clearly this got a lot of people quite excited.

It is worth bearing in mind that these were only proposals, and as such were intended to spark discussion.  It is also worth pointing out that the UK property market is unlike the rest of the EU.  The concept of private individuals owning multiple properties and renting them out is nowhere as common in most of Europe as it is in the UK.  So not entirely surprising that they would have based as set of proposals around the typical european set up.

The Reaction:

So, here’s a quick round up of the some of reaction to the news.

The NLA took some credit for the change:

 

NLA saves buy to let mortgages from being outlawed by European Union directive

The Mortgage Directive, officially known as the Credit Agreements Related to Residential Property Directive (CARRP) attempted to create a single regulatory framework which would govern all mortgages within the European Union. The EU lobbied hard for this directive so that EU citizens would understand the regularity regimes when purchasing properties in different member states.

The NLA has worked extensively with several European Parliaments and through pan-European associations such as the International Union of Property Owners (UIPI) and other UK and EU trade bodies to secure a complete exemption for buy to let mortgages from the directive.

The online magazine Introducer Today basically quoted NLA reaction:

BTL narrowly survives “catastrophic” EU Directive 

A new EU Directive that would have made buy-to-let mortgages illegal has been successfully averted down after industry lobbying.

Mortgage Introducer also relied heavily on the NLA press release:

NLA welcomes EU decision on buy-to-let – Buy-to-let – Mortgage Introducer UK

The mortgage directive, officially known as the Credit Agreements Related to Residential Property Directive, attempted to create a single regulatory framework which would govern all mortgages within the European Union.

The final text is now going through the trialogue process which involves all 27 heads of state and the European parliament who will analyse the new revised before voting on the new directive to sign it off.

The story was also covered extensively in the mainstream press:

UK landlords secure reprieve after early draft of EU mortgage rules threatened to ban buy-to-let completely

Early drafts of new mortgage rules currently being approved by the European Union would have banned buy-to-let loans completely and were only reversed after lobbying by UK landlords.The National Landlords Association said the original draft of the EU mortgage directive, which aims to create a single regulatory framework to govern all mortgages within the EU, would have halted the current booming buy-to-let market.It says that in constructing the directive, the EU Commission didn’t take into account the nuances of unusual mortgage products such as buy-to-let that only exist in Britain and Ireland.

To be fair to the EU, these were proposals intended to protect consumers.  Given the track record of the financial industry generally, and mortgage availability over the last decade or so, it does not seem unreasonable.  Contrary to some of the reporting, the proposals were not intended to “ban” buy to let lending.  No doubt that had the proposals gone unchanged it would have been a major problem for people operating under the current market setup, but this would have been an unintended consequence.  Not the intention.

Surely this is how drafting proposals and inviting response is meant to work.  An example to governments about listening to feedback ?

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