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Consumer buy-to-let mortgages

Consumer buy-to-let mortgages can be helpful to those who find themselves in the position of becoming an accidental landlord. We look at who can use this type of mortgage, how they work and how they differ from traditional buy-to-let mortgages.
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A row of UK terraced houses are shown, 3 of which have 'to let' signs posted in the front garden, to alert the fact that they are available for rental

What is a consumer buy-to-let mortgage?

A consumer buy-to-let mortgage is a type of buy-to-let mortgage that is regulated by the Financial Conduct Authority (FCA). Anyone providing advice to someone considering this type of mortgage must also be registered with the FCA as qualified to do so.

This means that similarly to regulated buy-to-let mortgages - which are intended purely for those renting their home to close family members - they offer greater financial protection to the buyer than a standard buy-to-let mortgage would.

A consumer buy-to-let mortgage, however, offers broader opportunities for accidental landlords than a regulated buy-to-let. It also allows:

  • Any home that was originally bought as a residential property by the buyer or a member of their family and has been lived in by either themselves or their family...

  • Any home that’s been inherited...

...to be let on the open market, so long as the rental is not intended to provide a main source of income and remains their only rental property. It is not intended for use by professional landlords to invest in residential property on a commercial basis.

A consumer buy-to-let mortgage could, therefore, be useful to homeowners in the following scenarios:

  • Who won’t be living at home for a set period of time, for example, because they are travelling or working elsewhere, but need to let out the home for longer term than a typical ‘consent to let’ agreement would allow

  • Who inherits a property that still has an outstanding mortgage balance, and doesn’t want to (or can’t) sell it, but cannot afford to keep up with the mortgage. A consumer buy-to-let would allow you to rent out the property to cover the repayments

  • You’re relocating to a new property, for example, moving in with a partner, but don't wish to (or are unable to) sell your home. You can use a consumer buy-to-let to cover any remaining balance on your mortgage, or make some extra cash - depending on your circumstances. You could also use one as part of a let-to-buy scenario if you also need to take out a mortgage for your new residential property - In fact, some lenders will only accept a consumer buy-to-let application as a part of a let-to-buy transaction

How does a consumer buy-to-let mortgage work?

They work similarly to any other buy-to-let mortgage, but are regulated as if they were residential mortgages. That said, there are a number of different criteria that you will need to meet in order to qualify for a consumer buy-to-let, as opposed to a professional buy-to-let.

Although buy-to-let mortgages are typically taken as interest-only mortgages, the majority of lenders offer a capital repayment option for their consumer buy-to-let products. 

This is likely to be easier to qualify for than an interest-only mortgage in this scenario, unless you intend to sell the property at the end of the mortgage term, or have an alternative robust repayment plan

How much can you borrow with a consumer buy-to-let mortgage?

Most lenders will offer a maximum of 75% LTV (loan to value) which means that you will be able to borrow 75% of the current cost of the property. 

Most lenders will take your personal income into consideration, so affordability is likely to be determined by using four times your annual income. However, they may include the potential rental income in their calculations, depending on the individual lender criteria.  

What is the difference between a consumer buy-to-let mortgage and a standard buy-to-let?

Other than the FCA protection offered by a consumer buy-to-let mortgage, the main difference between the two is intent. Consumer buy-to-let mortgages are aimed purely at those individuals who have become a landlord accidentally, but don’t want to (or can’t) sell the property in question.

A standard buy-to-let mortgage, on the other hand, is not regulated by the FCA as it is considered to be a commercial product. They are solely intended for intentional landlords who are looking to invest in the residential rental market in order to turn a profit.

Consumer buy-to-letStandard buy-to-let
For accidental landlordsFor professional landlords who invest in rental property for profit
Regulated by the FCANot regulated by the FCA
Buyer or a family member must have lived in the property previouslyProperty can be purchased from the open market

How does a consumer buy-to-let differ from a regulated buy-to-let?

A regulated buy-to-let has much more stringent rules in terms of who you can let out your home to. It is only suited to those homeowners intending to let their property to immediate family members. So, for example, even cousins would not typically be considered an acceptable tenant.  

A consumer buy-to-let can be let out to anyone, so long as it has not been purchased with the intention of making a profit and you own no other rental properties.

Are you eligible for a consumer buy-to-let mortgage?

It can be more difficult to qualify for a consumer buy-to-let than a standard buy-to-let mortgage, as lenders are more cautious about affordability. They will usually consider the rental income, but are likely to be insistent that you also meet affordability through personal income.

Standard mortgage criteria, such as creditworthiness, being within the application age limits and having a large enough deposit to meet the LTV (Loan to value) ratio of your borrowing will also apply.

You will also need to meet the ownership criteria in order to use this type of product specifically, so you will have to prove that:

  • You did not originally buy the property with the intention of letting it out

  • Property rental is not your main source of income and is not intended to replace an existing income

  • You or one of your relatives has previously lived in the property

  • You don’t own any other rental properties

Additional criteria may apply and will differ from one lender to the next, for example:

  • You may need to provide an income and expenditure plan

  • Some lenders will only allow this for a remortgage, given that you should be becoming a landlord accidentally

  • Some lenders will only offer this as part of a let-to-buy arrangement

  • Some lenders may insist that you meet a minimum rental income of between 125-145% of the mortgage repayments, even when using your personal income to determine affordability

How do you get a consumer buy-to-let mortgage?

If you think you will qualify for this type of mortgage, a good first move would be to get an estimate on the potential rental yield (income derived from letting it out). Most lenders will prefer that you use an ARLA registered letting agent to carry out this assessment.

The next step would be to reach out to your existing lender, unless the property is inherited and has no mortgage, to see if they would be open to allowing you to switch mortgages onto a consumer buy-to-let product. 

Not all lenders offer this option, so it may be that you will need to remortgage with another lender in order to get a consumer buy-to-let mortgage.

A mortgage broker will be able to help you compare all of the consumer buy-to-let mortgage options available to you, to ensure you can find the right lender and deal for your circumstances.

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