Proposed EU mortgage rules could kill buy to let

A petition to prevent EU legislation forcing UK mortgage lenders to adjust their lending criteria is hot news amongst landlords and the Private Rented Sector at the moment.

If the laws are adopted as proposed, UK mortgage lenders will be forced to base buy to let mortgages on earned income. Currently, buy to let mortgages are calculated on a more commercial basis with affordability being based on rental income and common sense in terms of the borrowers personal finances and credit history.

Industry experts have said the proposed changes to the rules could stop the growth of the sector in its tracks and create a collapse in house prices as buy to let landlords are forced to sell up en-masse.

An online petition to urge the UK government to block the legislation has been created and it’s not just thousands of buy to let landlords that are signing it.

The whole issue is controversial though and action groups who would benefit from another property market crash are attacking the petition and anybody promoting it in any way they can. My own website was dubbed “the belly of the buy to let beast” and attacked this week. Members of these action groups  fall into three main component groups:-

  1. They are super rich and are sitting on huge sums of money waiting to invest it into cheap housing. Talking the market down even further is good news for them as it means they can buy more for less and then talk it back up again to make a quick profit.
  2. People who are forced to rent because they are unable to save a sufficient deposit or earn enough money to qualify for a mortgage
  3. Wealthy parents who have paid off their mortgages and want to see their children be able to afford to buy

Some of these motives might appear respectable or simply good business sense but let’s break down some of the wider implications if the proposed legislation is allowed to affect the UK.

  • If there are less buy to let landlords, where will student live after they leave University Halls of residence? If we see a shrinkage in the availability of student accommodation the rules of supply and demand will kick in and rents will rocket. On top of the rising costs of education this could spell disaster for University education, a vital component for the future growth of Great Britain.
  • Further falls in house prices could put millions of homeowners into negative equity. If they end up losing their homes they will need to rent. However, with a smaller Private Rented Sector, what will their choices be and how much would they have to pay in rent to be one of the lucky few to find a quality rental property?
  • If rents rocket, will this not be attractive to unscrupulous charlatans with dirty money and provide an opportunity for profiteering from under supply in the rental market by charging exorbitant rents for sub-standard property?
  • With the growing trend of Councils and Housing now giving priority for their housing stock to the employed, where will the unemployed live if the Private Rented Sector doesn’t grow?
  • With the Office of National Statistics projecting growth in the UK population to 71.6 million by 2033, where will they all live? Britain’s economy thrives on attracting immigration and, love it or hate it, this level of projected growth in population isn’t going to come from child birth. Foreigners moving to the UK are often unable to buy a house so they have to rent. Therefore, it stands to reason that the Private Rented Sector needs to grow.

For further information, to join in the debate or to link to the petition please see this link.

By Mark Alexander
Mark and his family have been investing in property since 1989, initially in the Norwich area but more recently across the length and breadth of England. Mark created Property118.com as a social network for landlords with a vision of becoming the UK’s largest online property investor directory.

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