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.
Buy-to-let mortgages are intended to help landlords buy a property to rent out to tenants.
They came into being in the nineties 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, since March 2016, buy to let mortgages have 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 looks 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 elements 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.
Broadly speaking, 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:
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.
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.
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.
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.
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 losing their homes.
The 2012 Mortgage Market Review states that lenders must have trained staff fully to assess your income and carry out stress tests and risk assessments before offering you a mortgage. It also made it much more difficult for lenders to be able to issue interest only mortgages.
These rules were intended to stop people getting into unmanageable debt and protect consumers from irresponsible lending.
Prior to 2016, they only applied to mortgages for properties to be used as a residence by the borrower, but now with a consumer buy to let mortgage, so-called accidental landlords can enjoy the same protections.