In March, the European Parliament will debate a Commission proposal for a directive that will add more EU regulation to the financial services sector.
The Capital Requirements Directive (CRD4), if passed into law, ‘buy to let’ mortgage applicants will not have their future rental income taken into account when their application is assessed.
A working paper of CRD4 was published in July of last year, and can be found at http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/IA_directive_en.pdf
The introduction on the paper explains the proposal,
“1. INTRODUCTION
The "CRD IV" package is a comprehensive review of EU banking prudential rules and
supervisory arrangements, currently provided for in Directives 2006/48/EC1 (the Capital
Requirements Directive) and 2006/49/EC2. It implements the international Basel accord
on banking supervision. The key objective of the proposal is to address the shortcomings
exposed during the financial crisis, to move towards a single rulebook regulating credit
institutions in order to prevent recent problems from reoccurring in the future, and to
ensure that risks linked to the issues of financial instability and pro-cyclicality are more
effectively contained.”
Further information on the report can be found on http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0142:FIN:EN:PDF
An extract of this:
"(24) An assessment of creditworthiness should take into consideration all necessary factors that could influence a consumer's ability to repay over the lifetime of the loan including, but not limited to, the consumer's income, regular expenditures, credit score, past credit history, ability to handle interest rate adjustments, and other existing credit commitments. Additional provisions may be necessary to further elaborate on the different elements that may be taken into consideration in a creditworthiness assessment. Member States may issue guidance on the method and criteria to assess a consumer's creditworthiness, for example by setting limits on loan-to-value or loan-to-income ratios. " p. 19
Please see even, Chapter 5 Creditworthiness assessment, p. 34-36
Article 14 Obligation to assess the creditworthiness of the consumer
"1. Member States shall ensure that, before the conclusion of the credit agreement, a thorough assessment of the consumer's creditworthiness is conducted by the creditor, based on criteria including the consumer's income, savings, debts and other financial commitments. That assessment shall be carried out on the basis of the necessary information, obtained by the creditor or, where applicable, credit intermediary from the consumer and from relevant internal or external sources and shall respect the requirements with regard to necessity and proportionality set out in Article 6 of Directive 95/46/EC. Member States shall ensure that creditors establish appropriate processes to assess the creditworthiness of the consumer. These processes shall be reviewed at regular intervals and up-to-date records of those processes shall be maintained."
"4. Further to assessing a consumer's creditworthiness, Member States shall ensure that creditors and credit intermediaries obtain the necessary information regarding the consumer's personal and financial situation, his preferences and objectives and consider a sufficiently large number of credit agreements from their product range in order to identify products that are not unsuitable for the consumer given his needs, financial situation and personal circumstances. Such considerations shall be based on information that is up to date at that moment in time and on reasonable assumptions as to the consumer's situation over the term of the proposed credit agreement.
5. Powers are delegated to the Commission in accordance with Article 26 and subject to the conditions of Articles 27 and 28, to specify and amend the criteria to be considered in the conduct of a creditworthiness assessment as laid down in paragraph 1 of this Article and in ensuring that credit products are not unsuitable for the consumer as laid down in paragraph 4 of this Article."
Article 15 Disclosure obligation on the part of the consumer
"1. Member States shall ensure that consumers provide creditors and, where applicable, credit intermediaries with complete and correct information on their financial situation and personal circumstances in the context of the credit application process. That information should be supported, when necessary, by documentary evidence from independently verifiable sources."
This will make it very difficult for those wishing to enter this particular market, as the private rented sector is largely dependent on mortgage finance to fund the purchase and improvement of properties. However, it will not really affect big business, which seems to have increasing influence over the legislative process.
In the UK, this will also affect the social housing sector, as since the selloff of council housing private rentals funded through housing benefit fill that requirement.
The Residential Landlords Association is lobbying HMG to challenge this directive, and they have blogged about it on their site at the following link: http://news.rla.org.uk/index.php/archives/1151. I will certainly oppose it.
More information about CRD4 can be found on the commission website at:
Further information:
http://news.rla.org.uk/ Residential Landlords Association News Page
PRESS RELEASE
A Member of the European Parliament for the West Midlands region has this week lambasted EU proposals which would bring Britain’s buy to let mortgage market into line with Continental practice. Leading mortgage brokers and estate agents have all agreed that the buy-to-let (BTL) sector needs EU intervention like a fish needs a bicycle – but fear that is what it is going to get, whether landlords and tenants want it or not. The issue for lenders is the UK is the only European country that has a thriving buy to let market. In other countries, property investment is carried out by companies or trusts rather than individuals.It is thought that if implemented the EU regulation could inflict huge damage to the private rental sector.
Hitting out Nikki Sinclaire MEP said ‘’Some 1.4m landlords with buy-to-let loans are set to be affected by the proposed changes, and some might find they no longer qualify for a remortgage in as little as two years’ time, It is outrageous that the EU should try to dictate to lenders and borrowers the basis on which loans should be offered’’ “This unwarranted assault on the buy-to-let market will inevitably result in less affordable rental housing. It will also put the lives of 1.5million British investors and their tenants into turmoil.”
Potentially the new rules which would dry up funds would force hundreds of thousands of people to sell up. The glut of homes on the market would then see supply outstrip demand, possibly causing prices to crash. Leaving those who have purchased during the past few short years being pushed into negative equity. The buy-to-let sector which is worth several billion pounds has recently reached its busiest levels since 2008 thanks to strong tenant demand.
The private rental sector is increasingly important to the economy, increasing by almost a million homes in just five years. But the EU plans could put fresh growth under threat by reducing the supply of properties.
Nikki Sinclaire MEP has claimed a number of MEPs have claimed that their constituents do not care about the new proposals and may use this excuse to support the proposed changes in Committee or in plenary . Urging landlords AND tenants who have not already contacted their MEP to do so now. ''immediately people would think this would effect just investors but in truth this will damage the whole housing market inculding ordinary homeowners ''
Nikki said if changes to the UK buy to let market need to be made they must be taken by our democratically elected politicians in Westminster, not by faceless and unelected bureaucrats in Brussels.
