EU directive joins stamp duty in driving surge for buy to let mortgages

EU directive joins stamp duty in driving surge for buy to let mortgages

February has seen a further burst of buy to let activity, fuelled not only by the stamp duty surcharge deadline but by the upcoming EU Mortgage Credit Directive.

A mortgage monitor operated by chartered surveying firm e.surv shows that overall house purchase approvals last month totalled 72,799, forming the second highest total since January 2014, which saw 75,691 loan approvals. 

February’s total also easily beat the average 71,173 approvals seen across the previous six months, in spite of a monthly 2.4 per cent drop from 74,581 granted in January this year.

The EU mortgage credit directive which will come into force by the end of March is set to bring new parameters for buy to let borrowing. It is designed to prevent ‘risky’ mortgage lending and redefines landlord mortgages as “consumer lending”, making them subject to stricter lending criteria.

The directive introduces new mortgage affordability checks for lenders designed to ensure borrowers can afford their repayments - not just at their initial rate but also if rates were considerably higher. This is likely to mean a more arduous application process and harsher means testing for consumer landlords.

“For buy to let investors the race really has been on to beat both pieces of legislation [but] some concerns about these changes are overly pessimistic. Before the implementation of  new MMR rules, uncertainty was rife among both borrowers and lenders but the reality wasn’t as dramatic as predicted by many. MMR actually brought in positive changes for the industry and further regulation has the potential to do the same” claims Richard Sexton, director of e.surv.

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