What is a Consumer Buy-to-Let?

What do I need to know?

The European Mortgage Credit Directive (MCD) rules went live as of 21st March 2016. Part of the changes included providing regulation for some buy-to-let loans for the first time, the purpose of which to deliver consumer protection for “accidental landlords”.

What is an ‘accidental landlord’?

Accidental landlords, or consumer buy-to-let landlords, now have the same access to the Financial Ombudsman regarding complaints as those taking out a residential mortgage. An accidental landlord is a person looking to raise a mortgage on a property which was not purchased for the purpose of business. This can be either inheriting a property or renting a property that they have lived in (let-to-buy).

Those that fall under the above definitions will have to meet lenders’ requirements for affordability and ensure that they are able to afford the mortgage repayments. It is estimated that 11% of existing buy-to-let mortgages fall into this category.

What protection is offered under MCD?

Investment BTL owners are still classed as a business borrower, which is a sector that requires less supervision and protection. But those that now fall under the category of consumer BTL will have the following assurances:

1 – Increased upfront disclosures such as KFI+/ESIS

2 – Lenders are required to treat clients with arrears reasonably

3 – Applicants have rights to complain to the Financial Ombudsman

How do lenders define consumer buy-to-let?

There is a slight lack of consistency regarding this, but some lenders are already asking additional questions on their application forms or offering visual aids to help best define whether a buy-to-let mortgage application falls under consumer rules or if it is an investment property. It is a complicated area, which is why speaking to our adviser is a great idea if you feel these changes might affect you.