Complicated Mortgage Rules Spell Trouble For Expats

Expats leaving Britain and wanting to let out their home while overseas may find sorting out a buy to let mortgage a problem.

New European Union mortgage rules mean lenders will have to run stringent tests to make sure expats can afford the extra debt before they leave the UK.

Until March 2016, expats moving out of their home to go overseas can ask their mortgage lender for permission to let.

The request is generally a formality but sometimes comes with a fee and a higher mortgage interest rate.

From March 2016, the new European mortgage credit directive comes into force.

Under the new rules, banks and building societies will have to put the request through rigorous underwriting to show the borrower can afford the loan and understands their responsibilities as a landlord.

Voluntary code for lenders

Banks and building societies are agreeing a voluntary code to make sure they do not fall foul of the rules.

The code will insist lenders treat the borrowers on the same terms as residential mortgage holders rather than professional buy to let landlords.

Professional landlords will be outside the directive, but let to move borrowers will have to follow the new rules.

The full details are not yet available, but trade body the Council of Mortgage Lenders has indicated the major points of the code:

  • Lenders must identify if the borrower is a let to move or professional landlord
  • Terms and conditions of any borrowing must be clearly explained in writing
  • Let to move landlords will have to pass an affordability test to prove they can still pay their mortgage if interest rates go up or rent is late or the home is empty
  • Let to move landlords must sign a declaration pledging they understand and will follow any legal obligations they have as a landlord

“Our belief is these rules will not affect too many landlords as only a small number have let to move mortgages,” said a CML spokesman.

Surprise decision

“Our understanding was that landlord mortgages would not be included under the directive and we were surprised when we were told these mortgages would now be included.

“The issue for lenders is not how the rules will impact on this small number of landlords, but the extra time and cost involved in checking the right rules are followed for the different types of borrower.

“That’s why we have decided to draft a voluntary code for lenders in this market to follow.”

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