Buy-to-Let landlords can breathe a sigh of relief
Finally, some good news for landlords in the UK. If this had gone ahead for the UK, it really would have put a major dent into the Great British passion that is buy-to-let.
In short, the directive was going to create a lot more red tape for UK buyers. Buy-to-let in particular was an unregulated product which falls outside of the remit for the Financial Services Authority (FSA). Under the directive on Credit Agreements Relating to Residential Property (CARRP), the United Kingdom would have been forced to be aligned with mainland Europe whereby the banks will assess the borrowers capability to fund buy-to-let on their main and principal income and not on the revenue the rental property would generate. This would have put a spanner in the works for buy-to-letters who were looking to expand their portfolio by using to the power of leveraging. This practice would have no effect for portfolio landlords as they would be assessed on their income alone.
Whilst it hasn’t been fully confirmed as of yet, there is a draft been put in place which the EU regulators have allowed the UK buy-to-let product not to be incorporated in this draft.
Buy-to-let needs regulation though, doesn’t it?
Regulation of any kind has costs and it is inevitable that the costs would have to be borne by the consumer, further reducing the competitiveness of the products available. In the buy-tolet sector, this may have caused two primary knock-on effects:
a) Landlords would no longer be able to expand their portfolio and the quality of landlords would decrease due to a lack of professionalism.
b) Rents would possibly increase as the products become more expensive (due to the regulatory costs) i.e. the landlord has passed on the cost to the tenant
In any case, it’s a great thing for the UK in general to not have to comply under these new EU directives. What it means for the vast majority of Europe is a different matter.