Bob Dylan famously sang “Times are a changing”. And that’s exactly true of the mortgage market and with change always comes a challenge – and often one that makes us stronger. Just like Mortgage Market Review (MMR), the Mortgages Credit Directive (MCD) promises to do just that.

But what will those changes be? As lenders translate the new legislation, as not all lenders will be making the same changes or at least not at the same time.

One focus is on a changing climate in the non-regulated BTL market and the introduction of new BTL requirements.
From March 2016, new non-regulated BTL loans may be referred to as either “Investment Property Loans” (IPL) or “Consumer BTL” (CBTL)
Homeowners who haven’t intentionally taken out a BTL mortgage may fall into this latter category as “Accidental Landlords”, provided they don’t already own a BTL property.

Although the two loan types are similar and the product terms identical, they will require different disclosures and additional questions will be introduced to ensure the right loan suits your circumstances.
Regulated BTL won’t change however. This will remain defined as it is now

Examples of CBTL may include people who’ve been forced to relocate. They may have moved home temporarily as a result of circumstance rather than design – for work or personal reasons – and have chosen to rent their home rather than selling it. It may also include those who’ve inherited property and are looking to raise capital against it i.e., those taking out their first BTL mortgage. IPL will generally refer to existing landlords and those purchasing property specifically to let.

Recently the chancellor has also announced changes to the way landlords can claim tax relief against mortgage interest payments and a 3% extra charge on Stamp Duty for BTL purchases will create challenges and coupled with the Governor of the Bank of England recently warning that landlords could be ‘disproportionately vulnerable’ to large falls in house prices and could make any property downturn even worse.

Buy-to-let mortgage lending has risen by 40 per cent since 2008-20 times faster than ordinary loans. In the same period, the buy-to-let share of the whole market has risen from 12 per cent to 16 per cent.

The Bank said this could push up house prices further, forcing people to take out bigger loans fuelling greater household debt. If landlords see their loan repayments overtaking any rental income they can generate, many will respond by selling their property-potentially accelerating a downturn in the property market.

It said “The committee considered the rapid growth of buy-to-let mortgage lending. It does not consider action to be warranted at present, but will monitor underwriting standards and other conditions closely”— as we all will be

What to expect
Unlike MMR, there’s no transition period for lenders to implement changes when MCD comes into effect on 21 March 2016. So lenders, including us, will have to ask additional questions at application stage to establish whether the case is CBTL or IPL.

Philosopher Alan Watts is quoted as saying “The only way to make sense out of change is to plunge into it, move with it and join the dance” which is why it’s important to look out for the messages lenders provide during the months ahead – stay tuned!