Mini buy-to-let boom as clock ticks on new EU mortgage lending rules and stamp duty hike

An imminent tightening of mortgage lending rules by the European Union and the threat of higher stamp duty is fuelling a miniature buy-to-let boom as investors rush to beat both. In its Mortgage Monitor for February, the chartered surveyor e.surv said mortgage approvals lifted 17.4% over the year to 72,799, the second-highest monthly figure since January 2014, an increase put down to a sharp spike in buy-to-let activity.

In mid-March, the EU Mortgage Credit Directive comes into force in the UK, part of which includes more stringent rules for buy-to-let lending, such as stricter means-testing of borrowers. It doubles-down on the Mortgage Market Review (MMR) by the Financial Conduct Authority (FCA), a banking regulator, which had already imposed a more demanding assessment regime for loan applicants amid concerns that high house prices were causing people to become too indebted. Moreover, from April 2016 Chancellor George Osborne will add a 3% levy on top of normal stamp duty rates for all purchases of additional property, a move that will hit landlords.

"The clock is ticking for buy-to-let investors," said Richard Sexton, director of e.surv. "For buy-to-let investors, the race really has been on to beat both pieces of legislation. Some concerns about these changes are overly pessimistic. Before the implementation of last year's new MMR rules, uncertainty was rife among both borrowers and lenders but the reality wasn't as dramatic as predicted by many. MMR actually brought in positive changes for the industry and further regulation has the potential to do the same."

The Royal Institute of Chartered Surveyors (Rics) warned that the last-minute rush by buy-to-let investors to seal property purchases before April is accelerating the growth of house prices. But those rushing to buy may end up paying a premium in the price that fades when demand dies down again after April, ending up worse off than if they had waited and paid the extra stamp duty.