New EU mortgage legislation put accidental landlords at risk

Half of buy-to-let mortgage applicants are unaware of the impending changes to mortgage law, according to Direct Line, with accidental landlords least likely to know about the changes.

Almost two-thirds of applicants were unaware of either the changes to mortgage tax relief or the EU’s Mortgage Credit Directive (MCD); changes which could impact their ability to secure a mortgage.

This lack of awareness increased to 71% among ‘accidental landlords’; those who rent out property due to unforeseen circumstances such as being unable to sell or through inheriting a home.

‘Accidental landlords’ account for around 17% of new mortgage applications, so a large proportion is unclear of the changes.

The EU’s MCD could see landlord-lending being viewed as “consumer” lending, and could be subject to more stringent lending criteria. The findings revealed that 59% of mortgage advisors believe that the MCD will have a negative impact on the approvals of buy-to-let mortgage applications.

Changes to the mortgage tax relief are set to be phased in from April 2017, with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. They will instead get a tax credit equivalent to 20% basic-rate tax on this amount.

Nick Breton, Head of Direct Line for Business, commented on the findings: “The new EU legislation on mortgages coupled with the Government’s increase in buy-to-let taxation could significantly alter the buy-to-let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord.”