In March next year new rules under the Mortgage Credit Directive will introduce a new fully regulated category of buy-to-let termed consumer buy-to-let.
In January this year the Treasury defined consumer buy-to-let as any buy-to-let contract in which the borrower has not entered “wholly or predominantly” for business purposes.
General market consensus has it that landlords falling into this category include borrowers who inherit a property and choose to let it out or who choose to let their home in order to buy a new property.
The Financial Conduct Authority has so far been reluctant to give more clarity to the Treasury’s definition.
But speaking yesterday at the Association of Short Term Lenders’ annual conference in London Lorna O’Brien, mortgage sector technical specialist at the Financial Conduct Authority, said lenders could take legal advice on whether a borrower waiver would allow them to lend to so-called consumer landlords on commercial terms.
She was not able to give guidance on where the liability would lie if a consumer buy-to-let borrower subsequently regretted their decision to waive their right to consumer protection under MCD.
But she said that the lender would need to be satisfied that the buy-to-let loan was being taken for business purposes.
A statement from the FCA said: "A creditor cannot rely on this declaration if it, or anyone acting on its behalf, knows or has reasonable cause to suspect that the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business. It would be for a firm to determine how it establishes a ‘reasonable cause’."
Eddie Goldsmith, founding partner at law firm Goldsmith Williams, said lenders would have to assess each borrower on a case-by-case basis.
He said: “I don't see how lenders can come up with a firm fixed policy on this - it will depend on the circumstances of each particular case.”
However buy-to-let lenders seemed reluctant to offer borrowers such a waiver.
John Heron, managing director of Paragon Mortgages, said: “I think the legislation is very clear. You cannot be a consumer buy-to-let borrower if you already own a property that is rented and if the loan being applied for is a buy-to-let purchase.
“If the loan is a remortgage of a property that the borrower has previously lived in and the customer does not have any other rented properties, then the mortgage is a consumer buy-to-let.
“Whilst helpful there is no need for a lender to rely on the borrower’s declaration (which at best gives rise to a presumption that the loan is for a business purpose), the regulatory status of the loan is decided by the facts.”
Alan Cleary, managing director of Precise Mortgages, said regardless of a borrower declaration he would always treat customers in the appropriate regulatory category but he confirmed there would be no price discrimination.
He said: “It doesn’t make any difference to us as we are doing both consumer buy-to-let and buy-to-let; pricing will be the same for both.
“Lenders who will not be doing consumer buy-to-let should not use disclaimers or waivers to get around the rules and intermediaries should avoid any lender that does like the plague.”
