Consumer buy to let mortgages are regulated as residential mortgages and are aimed at ‘accidental’ or non-professional landlords
Consumer buy-to-let mortgages offer consumer protections to people letting out their homes, but not as a business or as an investment.
The Mortgage Credit Directive of 2016 brought sweeping regulation changes to the mortgage market. Notably the introduction of consumer buy-to-let mortgages which offer consumer protection to individual landlords.
About buy-to-let mortgages
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 regulation 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, as of March 2016 buy-to-let mortgages are split into two categories:
- Business – the same rules as old buy-to-let mortgages apply
- Consumer – this is a new category aimed at ‘accidental’ landlords
If you intend to become a landlord as an investment then you can compare our selection of business buy-to-let mortgages.
What are consumer buy-to-let mortgages?
Consumer buy to let mortgages are a new form of mortgage that came out of regulation changes in 2016.
These are mortgages for people who let out a property, but did not plan to. In short, a consumer buy to let mortgage is for people who have become ‘accidental landlords’.
Consumer buy to let mortgages are regulated in the same way as residential mortgages. This means the borrower enjoys more protection than they would with a normal ‘business’ buy-to-let mortgage.
Stricter affordability criteria will apply and tougher application questions will be asked, the same as those you would face if applying for a mortgage to buy a home, implemented after the 2012 Mortgage Market Review.
Can I get a consumer buy-to-let mortgage?
You cannot apply for a consumer 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 properties you let out
You should be eligible for a consumer buy-to-let mortgage if:
- You did not buy the property (or are not buying a new property) with the intent to let 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 properties that are currently being let out
Note that uSwitch does not currently compare consumer buy-to-let mortgages
Buying property to let out?
So, you will need a business plan before put together before you approach a lender. Read more in our guide on how to become a buy to let landlord.
Who might need a consumer buy-to-let mortgage?
If you let out your house and you don’t currently live there, you need a consumer buy-to-let mortgage. If you let out your home without notifying your mortgage lender you may be in violation of your contract.
While the term ‘accidental landlord’ sounds vague there are a few 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 the costs of your mortgage.
Inherited a relative’s property
If you have inherited a house and that property still has an outstanding mortgage, you could remortgage to a consumer buy-to-let to be able to rent out the property.
Moving elsewhere but not selling
If you are moving but don’t wish to sell your old home, so you plan to rent instead of buying, you could let out old home and transfer your residential mortgage onto a consumer buy-to-let mortgage.
Moving in with a partner
If both you and your partner own a home and you intend to move into one house, 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 with homes that people live in there are more stringent lending criteria to avoid foreclosures.
After the Mortgage Market Review lenders now must have trained staff fully assess your income, as well as carrying out stress tests and risk assessments before offering 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.
Previously these rules only applied to mortgages for properties to be used as a residence by the borrower, but now with a consumer buy-to-let mortgages accidental landlords can enjoy the same protections.
- How to become a buy to let landlord – Investing in buy to let property has become popular in recent years, what do you need to know before you become a buy to let landlord?
- Buy to let mortgages – Buy to let mortgages in the UK allow you to borrow money to buy properties to rent out.
- New pension rules explained – Soon over 55s will be able to reinvest their pension pots. With some planning to invest in buy to let property what should they be aware of?