It’s important to understand the difference between a professional and consumer landlord because of the new rules the UK government is imposing on buy-to-let loans. These have been developed in response to the Mortgage Credit Directive (MDC) – the legislation passed by the European Union which aims to regulate the property market.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The reason behind these new regulations is to differentiate professional landlords with multiple properties from borrowers who may need protection if they find themselves “accidental landlords.” The Financial Conduct Authority will now be more involved in the way buy-to-let mortgages are sold, and in fact will have to grant special permissions to sell them.
What is a professional landlord?
A professional landlord’s primary business is running multiple properties. The sole reason they take out a mortgage is to run a buy-to-let property.
What is a consumer landlord?
A consumer landlord is someone who takes out a mortgage for a property that isn’t expressly used for business. They may have inherited an already rented out property or plans to let a home after living in it.
Why does it matter?
Moving forward, there will by two types of buy-to-let borrowers – consumer and professional – so regulations surrounding buy-to-let mortgages will now be similar to residential mortgages. In the past, landlords were viewed as business borrowers so they didn’t need the oversight consumer borrowers were subject to.
Lenders just set a ‘rental coverage figure’ for landlords to charge tenants that covered the monthly loan payment. However, with residential mortgages, approval is contingent on a rigorous application process with strict rules and affordability tests.
Rental coverage will still play a part in the decision process, but buy-to-let borrowers will also need to prove they can repay the loans they are taking out.
What will happen?
As part of the new process, lenders will have to share a “key facts” document that details product information, but since many already produce something similar on request of the Council of Mortgage Lenders, many providers only anticipate adding a few questions on their applications with little other changes to the lending process.
Since the application process will be tougher and longer, the availability of products for consumer landlords might become a challenge.
Despite this, many brokers predict little impact on their buy-to-let business and are still waiting for lenders to implement all changes that the new legislation requires.
Next steps
Whether you’re a professional landlord with a portfolio of properties or a consumer landlord with one property, the new process of applying for a buy-to-let mortgage will be easier to navigate with the help of a mortgage adviser on your side.
Contact one of our advisers to get the help you need today.
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