Only a week ago the papers were reporting how “Buy-to-let investors have had a bumper year” with data showing the average annual return for landlords was 12.7% before tax, mortgage repayments and maintenance costs were taken into account. There were even some new discounted mortgages aimed at buy-to-let landlords – 3.09% fixed for 2 years for example. All good it seems.
A week later and the same papers are rather gloomier – "buy-to-let profits could dry up by 2017" apparently as interest rate rises appear to be on the cards. Time to refinance onto one of those fixed-rate landlord mortgages perhaps.
Another problem is bubbling up for some landlords too, thanks to the good old EU and their "Mortgage Credit Directive", which sounds ominous doesn’t it; rarely are ”directives” good news. As with quite a lot of the EU’s ideas, this appears to have good intentions but also a great many side-effects which undo most of the benefits – just think of the Common Fisheries Policy and the resulting shameful waste of valuable fish. In this case the Mortgage Credit Directive will split "professional" landlords from "accidental" landlords and essentially make it harder, and more expensive, for the latter to get mortgages.
Currently all landlords are considered to be businesses for regulatory purposes, so they avoid the stricter consumer regime which applies to normal mortgages. The EU’s changes, which have to be implemented by March 2016, will classify accidental landlords – those who rent out their main home whilst working away for example, or someone who rents out a property they inherited – as consumers instead, and they will have to be treated as such by lenders.
Many landlords let out property originally purchased with mainstream mortgages, often after a change of circumstances, such as moving in with a partner, relocation or failure to sell. It has always been relatively easy to refinance in these cases, often with the same lender, even though the interest rate would be slightly higher.
But from 2016 lenders may have to start refusing to lend to homeowners "not intending to treat their buy-to-let portfolio as a business". These homeowners will have to go through the same application as normal mortgagees, with strict criteria on affordability and age.
It will be fascinating to see how the lenders will decide who is an "accidental" landlord, and what hoops landlords can jump through to avoid this unfortunate classification. It might be as simple as setting up a limited company called “Bob’s Property Ltd” to make a lender see you as a professional landlord.
One thing is for sure - regulating some buy-to-let loans and not others will add another layer of cost and confusion for everyone.