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MCD could bar cheap loans to accidental landlords

The Mortgage Credit Directive (MCD), could bar accidental landlords from switching to cheaper mortgage deals on affordability grounds.

Many could be told they cannot afford afford repayments that are actually cheaper than those they are currently making.

The EU Mortgage Credit Directive (MCD), which comes into effect in the UK this month, is designed to prevent ‘risky’ mortgage lending.


It redefines landlord mortgages as “consumer lending”, making them subject to stricter lending criteria.

The directive introduces new mortgage affordability checks for lenders designed to ensure borrowers can afford their repayments - not just at their initial rate but also if rates were 6% to 7% higher. 

The same rules will apply for those who are remortgaging too, blocking remortgage customers from taking advantage of lower interest rates.

Research by Insurer Direct Line suggests has shown that 62% of new buy-to-let mortgage applicants are unaware of the changes, rising to 71% for accidental landlords.

Ajay Jagota, founder of North-East based sales and lettings firm KIS, said: “It sounds completely ludicrous for lenders to deny people cheaper mortgages because they can’t afford them, and there’s a good reason for that – it is completely ludicrous.

“There is no question that this directive will create mortgage prisoners, people stuck overpaying on loans at a time when mortgage rates could be falling to their lowest ever levels.”

He said that lenders should have the right to waive affordability criteria when remortgaging if there is no increase in borrowing.

“This directive seems to fly in the face of EU’s commitment to a free market by denying people access to the full range of financial products available to them,” Jagota said.

From April next year the pressure on accidental landlords will further increase when they can no longer claim tax relief on mortgage repayments.


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