Part of the buy-to-let mortgage market is to be regulated after all – sparking concerns that the Treasury is downplaying the effects both in terms of numbers that could be affected and complexity.

In a U-turn, the Government has now decided to regulate buy-to-let mortgages taken out by “consumers” rather than professional landlords.

It believes that this is an EU legal requirement.

Although the U-turn specifically targets “accidental landlords”, there are concerns that people who had been considering cashing in their pension pots to invest in property instead could also be caught.

It is also unclear whether “consumer landlords” would qualify for traditional buy-to-let mortgages or residential loans – or whether a new type of product would have to be designed.

The Council of Mortgage Lenders said yesterday that it will publish a statement of practice.

It said: “It is the potential complexity of the proposals – rather than the number of borrowers affected – that causes most concern.”

The Government’s change of mind is in compliance with an EU mortgage credit directive due to be implemented in March 2016.

The Treasury has said that “accidental landlords” did not make a conscious decision to buy a property to rent out, and were therefore not acting in a business capacity.

There was an outcry from landlord associations and the mortgage industry when the EU first announced that under its new directive, all buy-to-let mortgages would have to be regulated.

While regulation gives borrowers some protection, the concern was that it would also have measured borrowing ability on a landlord’s earned income and not from rental revenue.

In addition, since April, applicants for regulated mortgages now have to have a barrage of checks, including long-term affordability.

While the UK won its battle not to have the buy-to-let market regulated, it has now changed tack on certain types of landlord and property – for example, where a home has proved impossible to sell and the owner has had to move anyway.

Paul Smee, director general of the Council of Mortgage Lenders, said: “It is frustrating that, despite earlier assurances, the buy-to-let position turns out not to have been adequately resolved, resulting in a new proposal for regulating part of the buy-to-let mortgage market.

“The regulatory regime now being proposed is based not on any evidence of a need for additional consumer protection, but purely on ensuring that the European legal requirements are met.”

Paul Broadhead, of the Building Societies Association, said: “It is clear that this directive will add cost and complexity to the mortgage process, with no discernible consumer benefit.”

Graham Kinnear, of Landlord Assist, said it was by no means clear where the line would be drawn between “consumer” and “professional” landlords who were seen to be running a business.

He said: “It was anticipated that pension reforms from April 2015, which will allow pensioners aged 55 and over to withdraw their pension pot and do with it as they like, would result in many turning to property investment to generate an income from a rental yield that outweighs savings rates.

“Under the new directive these loans could potentially fall under the new regulation and the loan applications may be declined on the basis of the applicants’ age or lack of a repayment vehicle.”

The Government has launched an eight-week consultation on the proposals.