However, as Europe never made the case for fuller legislation, the government said it has made the minimum of changes to its rules in the EU Mortgage Credit Directive (MCD).
Regulator the FCA, which is also consulting on the MCD, plans to release a further set of rules by the end of March this year.
Both sets of rules must be fully implemented by Q1 2016.
The government clarified that if a buy-to-let loan on a property has been bought for business purposes and for the sole purpose of letting it out, it remains unregulated. Equally, if the borrower has never lived in it and has a portfolio of properties, this remains unregulated.
Lenders can also confirm a loan is unregulated if the borrower signs a declaration saying they are acting wholly for business purposes and the provider has no reason to think this is incorrect.
To avoid confusion, the government also plans to exempt broking on buy-to-let mortgages from the scope of credit broking.
Other exemptions to consumer regulation include properties where a portion of the property is being used as a residential dwelling for the borrower or a relative, on for example, a farm or live/work unit, or where the property is predominantly a business, like a secured loan on a bed and breakfast business, for example.
An impact assessment suggests just 11% of the market, or 18,000 transactions will be affected by the consumer buy-to-let regulation changes each year.
The Building Societies Association (BSA) said ‘no significant impact is expected as a result of this legislative change.’
Paul Broadhead, head of mortgage policy at the BSA, said: “The BSA is still of the view that the Mortgage Credit Directive will offer little or no benefit to UK consumers, but will add cost, complexity and some confusion to the mortgage process. However, we welcome the Government’s approach to implementation, putting in place the minimum requirements to meet European law. The introduction of an appropriate framework for consumer buy-to-let will keep the majority of buy-to-let lending outside the scope of regulation, minimising the disruption to this market.”
Robert Sinclair, chief executive of AMI, said: “AMI is delighted that Treasury has listened to the voice of the broker and made changes to take brokers out of the scope of the consumer credit regime for unregulated buy-to-let loans. In addition the clarification on what comprises regulated consumer buy to let is positive.”
