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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.
What is a consumer buy-to-let mortgage?
A consumer buy-to-let mortgage (or consumer btl) is a type of buy-to-let mortgage that is similar to a regulated buy-to-let mortgage - which are used purely to rent property to close family. Consumer buy-to-let mortgages, however, are intended specifically for accidental landlords and offer broader opportunities than a regulated buy-to-let.
They also offer the same financial protection to the buyer as a regulated buy-to-let mortgage, as they're regulated by the Financial Conduct Authority (FCA). Anyone providing advice to someone considering a consumer buy-to-let mortgage must also be registered with the FCA as qualified to do so.
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Consumer buy-to-let checklist
A consumer buy-to-let mortgage 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.
It could therefore, be useful to homeowners:
Who won’t be living at home for a set period of time due to travelling or working elsewhere - but need to let out the home for longer than a typical ‘consent to let’ agreement would allow
Who inherit a property that has an outstanding mortgage balance, and doesn’t want to (or can’t) sell it, but can't afford to keep up with the mortgage. A consumer buy-to-let would allow you to rent out the property to cover the repayments
Who are relocating to a new property, but don't wish to (or are unable to) sell their home. You can use a consumer buy-to-let to rent out and cover any remaining balance on your previous mortgage, or make some extra cash - depending on your circumstances
Who want to rent out the property as part of a let-to-buy scenario - In fact, some lenders 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 a residential mortgage. That said, there are additional criteria you'll need to meet in order to qualify for a consumer 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'll be able to borrow 75% of the current cost of the property and the rest of the cost must be covered by your deposit (25%).
Usually your personal income is taken into consideration, so affordability is likely to be determined in the same way as it would for a residential mortgage - by using around four and a half times your annual income.
However, they may also include some or all of the potential rental income in their calculations, depending on individual lender criteria.
Are there any other differences between BTL and CBTL?
Other than the FCA protection offered by a CBTL (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.
| Consumer buy-to-let | Standard buy-to-let |
|---|---|
| For accidental landlords | For professional landlords |
| Regulated by the FCA | Not regulated by the FCA |
| Buyer/occupant must have lived in the 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'll usually consider the rental income, but are likely to insist 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'll also need to meet the following ownership criteria to use this type of product, including:
Proving that you didn't buy the property with the intention of letting it out
Demonstrating that property rental is not your main source of income and is not intended to replace an existing income
Proving that you or one of your relatives has previously lived in the property
Proving that 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 only allow remortgage customers, given that you should be becoming a landlord accidentally
Some lenders only offer CBTL 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 to apply for a CBTL if you become an accidental landlord
If you think you'll qualify, a good first move would be to get an estimate on the potential rental yield (income derived from letting it out) possible from your property. Most lenders prefer that you use an ARLA registered letting agent to carry out this assessment.
The next step is to reach out to the existing lender - unless the property is inherited and has no mortgage - to see if they would allow you to switch mortgages onto a consumer buy-to-let product.
Not all lenders offer this option, so it may be that you'll need to remortgage with another lender to get a consumer buy-to-let mortgage.
A mortgage broker will be able to help you compare the consumer buy-to-let mortgage options available to you, and ensure you find the right lender and deal for your circumstances.
Which lenders offer consumer buy-to-let mortgages?
They're quite specialist products, so it tends to be predominantly specialist lenders that offer them. However, there are a couple of bigger high street names that consider consumer buy-to-let applications, such as Barclays, TSB and Santander, although often these deals are only available via brokers.
Consumer buy-to-let FAQ
How much of a deposit do you need for a consumer buy-to-let mortgage?
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.
Can you remortgage with a consumer buy-to-let mortgage?
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.
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.
Are consumer buy-to-let mortgages regulated?
Yes they are. A standard buy-to-let mortgage, on the other hand, is not regulated by the FCA as it's considered a commercial product.
