Landlords are warned to take a closer look a t the upcoming EU Mortgage Credit Directive, the new piece of European Union legislation which, in effect puts a halt to “risky” mortgage lending. And placing an additional emphasis on landlords, the legislation also reassesses the definition of landlord mortgages as a former of consumer lending, thus bringing down harsher boundaries for receiving mortgages (specifically in cases where they may not be able to afford them).
With new affordability checks in place, mortgage lenders will have to ensure that all borrowers can afford repayments, not today, but onto and into the future, taking into account predictions of rate increases of up to six or seven percent. And while this is something which may actually be deemed as common sense, it yet remains something which has been overlooked with regard to landlord mortgages, most specifically because of their classification as not being consumer lending; until now, that is.
Additionally, the new regulation will have a particular effect on those remortgaging their properties too, where homeowners looking to consolidate and reduce their monthly payments may actually be told that the rates they would wish to remortgage to (naturally, lower than they are presently paying) are too high and unaffordable to them – a peculiar situation indeed, but one which may see a reduction in remortgaging, putting a little extra strain on those struggling to pay off their mortgages at present rates, yet also potentially encouraging people to take alternative methods of consolidating their outgoings.
Most specifically, the change is expected to have a considerable effect on what are known as “accidental landlords”; those who have had no intention of renting out a property they have purchased, but, for a variety of reasons, have decided to do so – likely due to the need for extra income and asset utilisation. Yet, starting in 2017, landlords will no longer be able to claim tax relief on their mortgage repayments and, as opposed to extracting mortgage interest repayments from their taxes, will instead be charged a rate of 20% on the amount. In effect, this could result in taxes actually being paid on losses..