Get ready for Consumer Buy-to-Let

GET READY
FOR CONSUMER
BUY-TO-LET
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INTRODUCING
CONSUMER BUY-TO-LET
The Mortgage Credit Directive (MCD) Order 2015
introduces a new Buy-to-Let (BTL) concept – the
Consumer Buy-to-Let (CBTL) loan. This is defined as
a BTL mortgage contract which “is not entered into
wholly or predominantly for the purposes of a business
carried on, or intended to be carried on, by the borrower”,
whereas a BTL loan is wholly or predominantly for the
purposes of a business.
The aim of the CBTL legislation is to provide additional
consumer protections, such as those offered by the
Financial Ombudsman Service (FOS), for consumers who
are not entering the BTL market by design and who are
very unlikely to be experienced landlords.
A customer taking a CBTL loan will enter a BTL mortgage
contract. This type of mortgage means that customers
(or family members) cannot at any time live in the
property – the property should only be occupied as
a dwelling on the basis of a rental agreement.
The MCD Order did not provide a complete list of what
constitutes a CBTL and BTL loan, so we have given some
examples of what we consider these to be on pages four
and five. They are only examples – the main purpose of
the loan will need to be considered in each case.
We understand there may be some uncertainty as the
industry adapts to the new regulations. As a lender,
we will work to make sure there is as little impact on
customers as possible, as we continue to support you
throughout the implementation of the MCD.
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QUESTIONS YOU MAY
HAVE ABOUT CBTL
Do CBTL sales have
to be advised?
No, there is no requirement for advice to be
provided for these loans – however, you may
want to provide advice.
What do I need to
do to offer CBTL?
Any firms wanting to offer CBTL loans must
apply for and hold the new FCA CBTL permissions.
Firms have been able to register for the FCA CBTL
permissions from September 2015.
I intend to submit
CBTL business –
what permissions
will Virgin Money
require me to hold?
Currently we only accept BTL business from
our intermediary partners who hold a regulated
mortgage permission. Any intermediaries
intending to submit CBTL business to us will need
to hold this permission and the relevant FCA CBTL
permission. All directly authorised intermediaries
must hold, or be working towards holding, a
relevant level 3 qualification, such as the Certificate
in Mortgage Advice (CeMAP). Other acceptable
qualifications can be found in the Financial
Conduct Authority (FCA) TC Rulebook, section 4.1.
Appointed Representatives will be subject to their
individual network’s T&C scheme requirements.
What are my
responsibilities as
an intermediary?
Once we have made our MCD-related system
changes in February, we will rely on you as
the CBTL authorised advisor to determine the
regulatory status of the loan when you submit a
BTL application to us. Other lenders may also do
this, or they may choose to gather information
from you to validate the regulatory status of the
loan.
When you submit a BTL application to us via
Virgin Money Online (VMO) or Mortgage Trading
Exchange (MTE), we will ask you to tell us whether
the loan is CBTL or BTL.
All other aspects of our application process will
stay the same, and we do not expect it to take
any longer to submit BTL applications than it
does today.
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How do I identify
a CBTL loan?
The following examples explain what we would
consider to be either CBTL or BTL where the
property will be occupied on the basis of a rental
agreement and there is no intention for the
customer (or a family member) to live there.
The MCD Order did not provide a complete list
of what may be considered a CBTL loan and
therefore some lenders may have different
definitions of BTL and CBTL loans. However,
we expect most lenders, including ourselves, to
follow the agreed definition as provided by the
Council of Mortgage Lenders (CML) in their CBTL
industry approach.
We will be following the approach as
outlined below.
BTL loans:
> If a customer is purchasing a property with
the sole intention of letting it out under a
rental agreement, we would treat this as a
BTL loan.
> If a customer is remortgaging the property
and meets either of the criteria below, we
would treat this as a BTL loan:
•T
hey already own other BTL properties
•T
hey do not own any other BTL properties
and since becoming the owner of the
property (which includes inheritance for
example) the customer or their family
members have not lived in the property
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CBTL loans:
> If a customer is remortgaging the property
and meets either of the criteria below, we
would treat this as a CBTL loan:
•T
hey do not own other BTL properties and
since becoming the owner of the property the
customer or their family members have lived in
the property (e.g. the customer is completing
a Let to Buy transaction or has inherited a
property and resided in it prior to letting it out)
•T
hey do not own other BTL properties and
are looking to raise capital for themselves
which amounts to 50% or more of the
total loan amount (e.g. the property is
unencumbered and the customer is raising
capital to pay for a wedding or a car)
As the intermediary you may choose to apply
additional checks to determine the status of
the loan.
If it is unclear as to whether the loan is BTL or
CBTL, it may be safer to assume it is CBTL due
to the additional protections provided.
How do I treat
joint applications?
We would expect a loan to be considered CBTL
if any applicant meets the CBTL criteria. So if
the application is joint and only one applicant
meets the criteria, it would still be a CBTL loan.
Will rules for CBTL differ
on family members living
in the property?
Under our lending policy, we are unable to
offer a BTL mortgage where the customer or
family member lives in a property that is being
let, or has a future intention to live there.
However, we may consider the application as a
residential mortgage. This policy will also apply
to CBTL loans.
Will CBTL loans be
assessed differently
to BTL?
No – our lending criteria, including affordability
and rental assessments, will be the same for
CBTL and BTL.
Will Virgin Money have
different products for
CBTL loans?
No – our BTL product range will be available
for both CBTL and BTL applications. There will
be no difference in the pricing or labelling of
our products.
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Will foreign currency rules
apply to CBTL?
The MCD Order describes a foreign currency
CBTL mortgage as a loan in a different currency
from that in which the borrower receives the
income or holds the assets from which the
credit is to be repaid.
We do not expect many of our applications to be
a foreign currency CBTL as the income or assets
the credit is repaid from will usually be from the
UK rental yield received from the UK property
and the final sale of the UK property itself.
However, if a customer is receiving rental
income from their CBTL property in a currency
other than GBP £Sterling, this will not be
acceptable income for assessing affordability
for a mortgage loan. In addition, we will not
accept repayment strategies in a foreign
currency to support an interest-only loan.
Our BTL minimum income requirements will
remain unchanged.
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What is the BTL
declaration?
When will Virgin Money
start offering CBTL loans?
The MCD Order states that customers taking
out a BTL loan may be asked to declare
they understand the mortgage is wholly or
predominantly for a business purpose. Although
this is not mandatory, we expect most lenders
to include a declaration.
To help minimise the impact of the changes to
our customers, partners and the wider market,
we will make all of our MCD-related system
changes in February 2016.
When and how the declaration is offered to
the customer will differ between lenders. Some
lenders may choose to provide this during the
sales process and others as part of the Offer or
as a separate piece of documentation.
Our BTL Offer will contain a condition stating
the customer understands the mortgage
is for business purposes. For us, this acts
as the business declaration. We will not
ask intermediary partners to obtain this
separately from their customers.
We will also amend our existing BTL declaration
that is submitted with the application.
For fully-packaged applications submitted
but not at Offer at the time of our February
system changes, we will aim to make sure these
applications are at Offer by 21 March 2016.
Where an application is partially completed
at the point we make our changes in February
2016, we will ask you to submit additional
information before the application can proceed.
For new applications received after we make our
February system changes, you will notice some
small changes to our application questions as
detailed on page three.
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WANT TO
KNOW MORE?
We look forward to working with you and making sure you
are fully supported. If you have any questions, please get in
touch with your dedicated Business Development Manager,
who will be happy to help.
We designed this guide to help summarise and provide
information about CBTL, and we hope you have found it
useful. However, this should not be solely relied upon for
your understanding. For more detailed information on any
aspect of the MCD, please visit the FCA website. You can
find requirements for registered CBTL mortgage firms in
schedule 2 of the Mortgage Credit Directive Order 2015.
For professional intermediary use only.
This is not a financial promotion and should not be displayed or used as such.
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