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by administrator @, Tuesday, November 15, 2011, 10:53

European Union (EU) plans to regulate Britain's booming buy-to-let sector could restrict mortgage availability, force landlords to sell and cause house prices to fall.

Other unintended consequences of proposed EU legislation could include reduced numbers of properties to rent, according to new analysis by the Building Societies Association (BSA).

Leading mortgage brokers and estate agents agree 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.

Now, despite the Treasury deciding two years ago that no further intervention in the housing market is justified, new legislation looks set to take effect next year. The EU draft directive on Credit Agreements Relating to Residential Property (CARRP) says BTL should be regulated in the same way as residential mortgages for owner occupation.

That could prevent lenders and borrowers - including existing BTL landlords seeking to remortgage at the end of fixed deals - from taking anticipated rental income into account when assessing how much mortgage is affordable.

Instead, EU proposals would bring Britain into line with Continental practice and force lenders to assess BTL in the same way as mortgage applications by owner occupiers on their prime residence; that is, the main criterion would be the borrower's earnings.

Paul Broadhead, head of mortgage policy at BSA, said: "If rental income is excluded from consideration when underwriting BTL then the availability of new borrowing could cease fairly rapidly. In addition, those with existing BTL loans may well be unable to refinance.

"Over time this could lead to a reduction in private rented sector properties. At the extreme, current BTL borrowers may be forced to sell their property portfolios which would have obvious implications for existing tenants and the housing market as a whole."

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