Will I need landlord insurance on a consumer buy-to-let mortgage?

Buildings insurance on the property will be essential to your mortgage acceptance, however, landlords insurance is usually optional from the mortgage lender’s perspective. This could be a sensible option for anyone planning to rent out their property, however, as it can cover your mortgage repayments when the property is vacant or your tenants are unable/unwilling to pay their rent.

Which mortgage lenders accept disabled applicants?

All lenders must accept disabled applicants, as to refuse a mortgage solely on the basis of a disability or long-term illness would be in breach of the Equalities Act. If you’re looking for a lender to accept disabled applicants whose primary source of income is benefits there will be fewer available. However, there are both big name high street lenders, such as NatWest and Barclays, and a range of more specialist lenders and building societies that will consider applicants with an income purely made up of disability benefits. It’s important to note that not all of these lenders will include 100% of your benefit entitlement in their calculations. For example, Santander will only use 65% of your benefit award in their calculations at the current time. Criteria change all the time, however, so it’s best to speak to a mortgage broker with knowledge of lenders across the market.

Are your assets included in your CGT at market value?

A gain for the purpose of CGT is usually the difference between what you paid for your asset and what you sold it for. However, there are some situations where the market value should be used instead: Gifts should be costed at market value at the time the gift was given Assets that were sold at a discount rate to benefit the buyer, the market value at the date of sale should be used Inherited gifts where the inheritance tax value is unkown, the market rate at the gift givers time of death should be used For any assets owned prior to 1982, the market value at 31 March 1982 should be used

What profits are CGT free?

Any profits that are below the current CGT threshold of £12,300 are free from capital gains tax, as well any profits from wasting assets (such as cars) or profits made from the sale of your main residential home, in most cases. You will also not need to pay CGT on any profits from: Gifts between husband and wife or registered civil partners or to charity The sale or gifting of jewellery, antiques, paintings and coins worth £6,000 or less Gambling winnings such as lottery wins ISAs and pensions Life insurance payouts Anything inheritance you leave (although inheritance tax may apply)

Are there ways to reduce your capital gains tax?

There are a few ways to reduce the capital gains tax you might need to pay, depending on your circumstances. HMRC has allowable losses, so if you have made a loss on the sale of any asset that you have sold, this is deductible from the CGT you owe. The allowance is also transferable between spouses, so if you or your partner has some of the CGT allowance remaining, this can be passed to the other spouse in order to increase their tax-free allowance.

Do I need to pay capital gains tax when I sell my home?

People don't usually end up having to pay capital gains tax when they sell their own residential home, as your main residence is usually exempt from capital gains tax. However, CGT may be due when you sell your main home if you have let it out or used it as a business premises. You may also have to pay capital gains tax on any profit you make from the sale if the size of the property (including grounds) is more than 5,000 square metres. If you sell a second home, or any subsequently owned properties, then any profit you make will usually be subject to capital gains tax.

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Consumer Buy To Let Mortgages

Consumer buy-to-let mortgages

Written by Kellie Steed, Mortgage Content Writer

13 January 2023

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-let	Standard buy-to-let
For accidental landlords	For professional landlords who invest in rental property for profit
Regulated by the FCA	Not regulated by the FCA
Buyer or a family member must have lived in the property previously	Property 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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Consumer buy-to-let FAQ

As this is a type of buy-to-let mortgage, the deposit requirement will typically be a minimum of 25%, however, as you will typically be remortgaging when you take out this type of mortgage, this can often be taken from the equity in the property, rather than having to provide a cash deposit for this amount.

If your equity does not cover the deposit requirement, you may need to add to it with a cash deposit, however.

The vast majority of consumer buy-to-let mortgages will be remortgages, given that you are supposed to already own the property and have become an ‘accidental landlord’.

If you already have a consumer buy-to-let mortgage, however, you will be able to remortgage onto another deal, as you would with any other mortgage product.

The same rules will still apply, so if you’re in a fixed-term deal, you will likely have to pay early repayment charges (ERCs) if you remortgage before the end of the term.

A young man in a wheelchair sits in a lounge holding a sign that has 'new home' written in chalk. He is surrounded by furniture and is smiling widely.

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