EU directive could lead to regulation of buy-to-let lenders

A European directive could force buy-to-let lenders to become FSA regulated.

Currently, buy-to-let mortgages are not regulated in the same way that ordinary residential loans are, on the basis that landlords are businesspeople rather than consumers and that commercial loans do not require consumer protection.

But the European draft directive on credit relating to residential property does not distinguish between buy-to-let loans and ordinary residential mortgages.

Currently Paragon Mortgages, as a standalone buy-to-let lender in the UK, is set to be an institution affected by the draft regulation.

If the rules go through, it may be forced either to apply for full FSA regulation to enable it to continue making buy-to-let loans to consumers, or change its model to offer buy-to-let mortgages to limited companies and commercial institutions only.

John Heron, managing director of Paragon Mortgages, said: “When considering the regulation of buy-to-let lending in recent years, the UK authorities were not convinced that the benefits of protecting landlords as if they were consumers was worth the potential impacts on the market.

“It would be a travesty if, having gone through this process, the European dimension forced this upon us.”