Buy to let mortgages come in two main forms, according to the Mortgage Credit Directive of 2016: consumer buy to let mortgages and business buy to let mortgages
Consumer buy to let mortgages are regulated as residential mortgages and are aimed at individual, part-time landlords, rather than professional landlords. They offer consumer protections to people letting out properties they own.
Business buy to let mortgages are for professional landlords who intend to run their rental properties as a business.
Business buy to let mortgages are for professional landlords who intend to run rental properties as a business.
Regulated buy-to-let mortgages are intended to help landlords buy a property to rent out to tenants.
They came into being in the 1990s after regulatory changes around tenancy lengths made it less risky for lenders to offer mortgages to would-be landlords.
Buy to let mortgages are offered as a business loan rather than a residential mortgage, and potential rental income is taken into account when the lender assesses the affordability criteria.
However, buy to let mortgages have since been split into two categories:
Business - the same rules as old buy-to-let mortgages apply
Consumer - these offer consumer protection for 'accidental' landlords
Consumer buy to let mortgages are a relatively new form of mortgage that was introduced to the market in 2016.
They are regulated in the same way as residential mortgages, which means the borrower enjoys more protection than they would with a normal ‘business’ buy to let mortgage.
That’s not to say they are necessarily easier to get than a business buy to let mortgage, though. To qualify for a consumer buy to let mortgage, you will have to meet stricter affordability criteria that look at both your income and the rent you can expect to receive. It’s a similar process to taking out a standard mortgage to buy a home - with a few extras added on.
Whether or not you can get a buy to let mortgage will depend on a number of factors, including how much you earn, what other debts you have, the deposit you can put down, and the rental income you can expect to receive.
You should apply for a business buy to let mortgage if:
You are buying a new property with the intention to let it out
You are a professional landlord
You already own multiple rental properties
You should apply for a consumer buy to let mortgage if:
You did not buy the property (or are not buying a new property) with the intention of letting it out
Letting out property is not your main job
You or a relative have previously lived in the property
You don’t own any other rental properties
If you intend to buy a property to rent out you will need a business buy-to-let mortgage.
A mortgage of this kind is considered a business loan, so you will need to put together a business plan before you approach a lender in order to get one. Read more in our guide on how to become a landlord.
If, on the other hand, you let out your house and you don't currently live there, you need a consumer buy to let mortgage. You can’t just leave your existing mortgage in place because letting out your home without notifying your mortgage lender is almost certainly in violation of your contract.
As explained above, you can’t just rent out your home without telling your mortgage lender as most standard mortgage contracts require you to live in the property - and failing to inform your lender could lead to heavy penalty fees or even mean your mortgage is withdrawn altogether.
So if you are going to become an 'accidental landlord', you’ll need to remortgage to a consumer buy to let mortgage deal. Here are a few examples of scenarios where this may apply:
1. Regulated buy to let mortgages - if you are going travelling
You should be eligible for a consumer buy to let mortgage if you are letting out your home while you are overseas to cover your mortgage costs.
2. Regulated buy to let mortgages if you are inheriting a relative's property
If you inherit a house and that property still has an outstanding mortgage, you could remortgage to a consumer buy to let deal in order to rent out the property.
3. Regulated buy to let mortgages - moving but not selling
If you are moving to a new property, but don't wish to sell your old home, you can cover any mortgage payments - and hopefully, make some money to boot - by letting out your old home and transferring your residential mortgage onto a consumer buy to let deal.
4. Regulated buy to let mortgages - moving in with a partner
If both you and your partner own a home and you intend to move in together, you could apply for a consumer buy to let mortgage in order to let out the other property.
Residential mortgage regulation
As residential mortgages are linked to homes people live in, the lending criteria you have to meet to get one is more stringent to prevent people from losing their homes.