The Treasury has established a definition for accidental landlord, as it looks toward applying the EU’s Mortgage Credit Directive.
Treasury Defines Accidental Landlord
The Treasury, who published draft legislation last week, have defined consumer buy-to-let contracts, known as accidental landlords, as any contract the borrower has not entered “wholly or predominantly” for business purposes.1
It launched its initial conference on the Directive in September, when it claimed accidental landlords would be put under regulatory scrutiny, however, a definition was not confirmed.
If a property has been inherited or bought as a residential lodging before a change in circumstances that led to it being rented, these transactions will be caught under the new system, and treated as a regulated mortgage contract under Mortgage Conduct of Business (MCOB) rules.
If the borrower on a buy-to-let contract has clearly stated that the property will be used for rental purposes, they will remain unregulated, unless the lender believes the borrower to be lying.
The new rules will not apply to loan applications submitted before 21st March 2016.
Furthermore, the Treasury has confirmed that responsibility for guaranteeing regulatory compliance regarding buy-to-let contracts lies with the broker firm, not the individual adviser.
Association of Mortgage Intermediaries (AMI) Chief Executive, Robert Sinclair, says: “The clarification on what comprises regulated consumer buy-to-let is positive.”1
Paul Broadhead, Head of Mortgage Policy at the Building Societies Association (BSA), adds: “The BSA is still of the view that the Directive will offer little or no benefit to UK consumers but will add cost, complexity, and confusion to the mortgage process.
“However, we welcome the Government’s approach to implementation, putting in place the minimum requirements to meet European law.
“The introduction of an appropriate framework for consumer buy-to-let will keep the majority of buy-to-let lending outside the scope of regulation, minimising the disruption to the market.”1