EU agrees to keep buy to let loans out of new directive

Buy to let mortgage restrictions proposed under the European mortgage directive look like being struck off the agenda.

Lenders expect the directive to exclude buy to let mortgage lending in the UK.

The news comes after months of behind-the-scenes negotiating between lenders, politicians and civil servants.

Regulators wanted to apply consumer protection rules for residential mortgages to the buy to let market, but British firms and the government argued landlord loans were for business rather than personal borrowing.

If the argument fails, landlords will have to undergo the same income underwriting as other home buyers, rather than having the project funded according to the rental income generated.

Conservative MEP Vicky Ford announced the agreement, explaining buy-to-let will not be regulated in the same way as residential mortgages.

Mortgages at risk

“We are back in a good place on buy-to-let,” she said.

Voting on the directive has been delayed many times as MEPS and civil servants handled more than 1,000 amendments to the documents. No timetable for finalising the directive has been agreed at Brussels, but the measures would take around two years to implement across the EU.

Buy to let funding was at risk because the UK is almost the only European market place for private rental property funding.

In most other European Union countries, landlords are institutions or funds rather than private individuals, making the UK an anomaly.

However, in a sometimes bitter battle, British banks seem to have lost the fight for packaged home mortgages that link savings accounts and insurance to mortgages.

Barclays and Lloyds Banking Group sell the loans, but they will be banned when the directive takes effect unless the banks can negotiate an exemption.

Besides buy-to-let, guarantor mortgages also look safe, while offset mortgages are outside the scope of the directive.

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