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Brokers praise UK’s mortgage directive carve-outs

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Brokers have praised UK negotiators for “fighting our corner” and securing key carve-outs from the European mortgage directive on buy-to-let and guarantor mortgages.

Final negotiations between the European Parliament, Council of Ministers and European Commission concluded this week and confirmed that UK buy-to-let mortgages will not be regulated in the same way as residential mortgages, as was originally planned.

Buy-to-let experts and lender trade bodies had warned that the sector would be stifled if it were covered by the proposals, which say lenders must take into account affordability when they advance a home loan. 

They argued that buy-to-let loans do not need to be assessed for affordability as borrowers use rental income to meet monthly repayments. 

The UK also secured four crucial carve-outs from tough new rules on packaged products, which will protect guarantor mortgages, shared equity loans, offset mortgages and endowments. Without the carve-outs, the new rules would have banned guarantor products such as Lloyds Banking Group’s Lend a Hand deal as they require savings accounts to be taken out with the mortgage. Offset mortgages and endowments would also have been banned as a savings product is attached to the mortgage, while shared equity would not have been allowed as it requires a mortgage combined with an equity loan.

The rules also confirm that the key facts illustration will be replaced by the European standardised information sheet by 2020 at the latest after the UK secured a five-year delay.

The European Parliament will vote over the summer and the new rules should be finalised and adopted in September. The UK will then have two years to introduce the directive into national law.

John Charcol senior technical manager Ray Boulger says: “We have been able to fight our corner and stop the EU from introducing rules that would have been particularly harmful for the UK.”

AMI chairman Patrick Bunton says: “Most of the points we have been arguing for have been listened to, particularly with the carve-out on buy-to-let.”

European mortgage directive: key points

A seven-day cooling-off period from when borrowers agree a mortgage

Early repayment penalties replaced by “fair compensation” 

Buy-to-let will be subject to less onerous regulation than other mortgages 

A ban on packaged products, with four UK carve-outs for shared equity loans, offset deals, endowments and guarantor mortgages

Lenders required to use reasonable forebearance for borrowers in difficulty

Bank staff must not receive remuneration that incites excessive risk-taking

UK lenders can retain the key facts illustration instead of the European standardised information sheet until 2020

Curbs on lender advertising with a focus on disclosing more information

Brokers can get a European passport and sell mortgages in all 27 countries

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