Landlords will still be hit by the latest crackdown on mortgage lending even though buy to let is outside the rules.
The Financial Services Authority (FSA) confirms buy to let funding is outside the new mortgage regime.
However, the FSA has announced tough new borrowing rules for residential mortgages will impact on landlords buying or remortgaging their own homes or capital raising from their homes for their property businesses.
The rules are the outcome of the FSA’s Mortgage Market Review (MMR), and come into effect on April 26, 2014, but many lenders will adopt the changes prior to the deadline.
The FSA wants to make sure mortgages are affordable for homeowners by:
- Making lenders investigate the borrower’s net income, including committed and basic essential spending
- Ensuring homeowners seeking interest-only mortgages have a credible mortgage repayment strategy that is not based on the house price increasing
- Including the likely impact of future mortgage interest rate increases on repayments
- Giving reasons in writing to prove a mortgage is suitable for the borrower
Lenders have some flexibility in assessing income for self-employed landlords buying a home or remortgaging, but the rules do not say whether rental income is acceptable if already considered against the affordability of a buy to let loan.
Landlords capital raising out of their homes for their property businesses will have to offer lenders a business plan and may opt out of affordability tests.
Martin Wheatley, managing director of the FSA and CEO-designate of the Financial Conduct Authority (FCA), said: “These rules will help create a more sustainable market that works well for everyone, whether they are a borrower or a lender.
“We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.
“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated.”
The move has been warmly welcomed by the mortgage industry, which collaborated with the FSA over the changes.
The mortgage industry and consumer groups have welcomed the rules.
Peter Vicary-Smith, chief executive of consumer champion Which?, said: “Proposals for banks to conduct an affordability test will hopefully prevent a return to the irresponsible lending of the past. But it’s disgraceful that banks encouraged so many people to borrow more than they could afford without proper checks. The banks have a responsibility to help these people who are now struggling through no fault of their own.”
