Accidental landlords most at risk of being caught out by new EU mortgage legislation

Accidental landlords most at risk of being caught out by new EU mortgage legislation

Direct Line for Business research reveals more than half of new buy-to-let mortgage applicants don't know about the mortgage tax relief changes.

  • 55 per cent of buy-to-let mortgage applicants are unaware of the impending changes to mortgage law
  • Accidental landlords, those who did not intentionally set out to rent out a property, are least likely to know about these regulatory changes

New research by Landlord insurance provider, Direct Line for Business1 reveals more than half (55 per cent) of new buy-to-let mortgage applicants are unaware of the mortgage tax relief changes, with accidental landlords the least likely to be aware of these new regulations.

The survey conducted amongst mortgage brokers across the UK, revealed that nearly two-thirds (62 per cent) of applicants were unaware of either the changes to mortgage tax relief or the EU’s Mortgage Credit Directive (MCD), that means changes which could impact their ability to secure a mortgage.  This lack of awareness rises to 71% amongst ‘accidental landlords’, namely those who rent out property due to unforeseen circumstances such as being unable to sell, or inheriting a home.

Table One:  Proportion of buy-to-let mortgage applicants unaware of upcoming changes to mortgage legislation

Buy-to-let landlord type Percentage who are unaware of either of the changes to mortgage legislation

Existing landlords looking to expand their portfolio


New landlords looking to create a portfolio


New landlords looking for a single investment property


Accidental landlords


Source: Direct Line for Business

Mortgage advisers estimate that accidental landlords account for approximately one in six (17 per cent) new mortgage applications, with overall buy-to-let mortgage applications growing by 29 per cent in the past year according to the panel.

The research also revealed that only 7 per cent of mortgage advisers believe that the MCD will have a positive impact on approvals of buy-to-let mortgage applications, compared to 59 per cent who expect it to have a negative impact.  The EU’s MCD could see circumstances where landlord mortgage lending will be viewed as “consumer” lending and could be subject to more stringent lending criteria.  Accidental landlords with one or two rental properties may not be able to pass the expected new affordability tests.   

Changes to the mortgage tax relief are set to be phased in from April 2017 with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. They will instead get a tax credit equivalent to 20 per cent basic-rate tax on this amount. Landlords are also set to be hit from April 2016 by stamp duty changes that mean anyone buying a second home or buy-to-let property will pay a 3 per cent surcharge on their stamp duty bill.

Nick Breton, Head of Direct Line for Business said: “The new EU legislation on mortgages coupled with the Government’s increase in buy-to-let taxation could significantly alter the buy-to-let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord.

“With house prices in the UK rising by 7% in the year leading to October 20152, and with the estimated average deposit standing at more than £61,0003, it is imperative that landlords are able to maintain a suitable amount of property to house the population of young people saving up to buy their first property, or those seeking a temporary stay in a town or city.”

With the new legislation set to be phased in between 2017 and 2020, Direct Line for Business is providing landlords looking to protect their income with the following tips:

  • Get good insurance cover – as well as covering the building and its contents, landlord insurance can also cover the landlord’s liability and loss of rent following an insured event such as a fire or flood. The average rental cost is £739pcm4 so not having the right cover in place could have a significant impact on your finances, especially if the property is uninhabitable for a period of time while repairs are taking place.
  • Secure tenants for less – letting and management agents currently charge between 10 and 15 per cent of the monthly rent in fees. If you have time and are prepared to take on the responsibility of finding tenants, making sure you are following all the correct procedures and managing your properties yourself, you could save more than £1,000 per year. If you rent a property privately you can also claim back the cost of advertising, credit checking, referencing, deposit protection and professional inventory costs
  • Make the most of existing tax benefits – Any money spent on keeping a property in a good state of repair is tax deductible, as are all broker and arrangement fees. You can also claim the whole cost of council tax or utility bills that a tenant would pay
  • Keep up to date with legislation – It is important to continually keep an eye on the policies affecting landlords to ensure that a property complies with the latest legislative changes. It is also important to consider whether a property is not just affordable in the short term but in the medium to longer term as often relief is phased out and additional taxes phased in over a number of years.

For further details on Direct Line for Business landlord insurance visit

Notes to editors

1 Direct Line for Businesses’ research conducted amongst 73 professional mortgage advisers in December 2015

2 ONS House Price Index, October 2015, published 15th December 2015

3 Calculation made on the assumption of an average house price of £287,000 (ONS, October 2015) and average deposit percentage of 21.3% (CML, 2014)

4 HomeLet Rental Index, December 2015

Citigate Dewe Rogerson
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Direct Line Group
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PR Manager
Tel: 01372 839 452
Mobile: 07825 315 931

Direct Line for Business

Launched in 2007 Direct Line for Business provides a range of insurance products for the small business sector direct by phone or online.

Direct Line for Business insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Direct Line for Business and U K Insurance Limited are both part of Direct Line Insurance Group plc.

Customers can find out more about Direct Line for Business products or get a quote by calling 0345 301 4827 or visiting

Landlord Insurance Press Release

Added: 22nd January 2016