Expat landlords at risk from new EU buy to let rules

Published:  14 Mar at 6 PM
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Expat landlords with buy-to-let properties in the UK are now at risk of falling foul of newly introduced rules to be enforced by mortgage lenders.The new borrowing rules set out in the European Mortgage Credit Directive will come in force on March 21, splitting buy-to-let lending into two categories. Landlords who have a registered business will be designated as ‘professional landlords’, whilst those renting out an inherited or former lived-in property will be judged as ‘consumer landlords’. The latter designation will apply to all expats renting out their former UK residence.

According to the UK Treasury, around 11 per cent of the buy-to-let mortgage total is made up of consumer landlord loans. The new rules mean that borrowing will now be subject to affordability rules including borrowing from other sources as well as income, thus restricting the amount allowed to be borrowed. The restrictions are aimed at putting the brakes on so-called ‘mortgage gaming’, in which a potential landlord is granted a buy-to-let mortgage based on the anticipated rental income covering the repayments. Once the property is purchased, a family member or the buyer move in, in spite of mortage conditions which prevent them from occupying a property used for loan security.

When asked how the new directive will affect the lucrative buy-to-let mortgage market, a spokesperson from the Council of Mortgage Lenders admitted it’s too soon to calculate, adding that consumer choice is another factor which might be affected. He said that smaller lenders may be reluctant to service the consumer landlord market, reducing the choice of mortgages available.

Investing in buy-to-let properties or renting out a mortgaged family home whilst working or retiring overseas has long been considered a good investment for older expats cashing in their savings as well as for those those taking up a long-term contract overseas. Returns in general have been higher than other forms of investment, and the sharp rise in UK property prices has resulted in capital gains.
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