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Consumer Buy to Let Mortgage

Consumer Buy to Let Mortgage

Gio Mandato explains all about consumer Buy to Lets.

What is a consumer Buy to Let and how does it work?

The Financial Conduct Authority (FCA) definition of a consumer Buy to Let is where someone enters a Buy to Let mortgage contract that isn’t for business purposes. 

Essentially these people are put in a position where they have a property to rent out. This often happens with an inheritance. Someone’s family member passes away and leaves them a property. If they then opt to rent it out, they become what’s known as an Accidental Landlord. That’s generally speaking what a Consumer Buy to Let is. 

It can work very similarly to a residential mortgage or like a standard Buy to Let mortgage. There are instances where the mortgage would be based on residential affordability, such as where a relative will be living in the property. Because there’s a chance that they may not be paying you rent, you need to be able to afford it off your own back. 

If the home will be rented out to someone independent, who’s not a family member, it would work as a normal Buy to Let mortgage. So it’s down to the specific circumstances in terms of how it’s assessed..

What’s the difference between a consumer Buy to Let and a standard business Buy to Let?

The main difference is the circumstance. With a standard Buy to Let, you would probably already be a homeowner who has a deposit and is looking to buy a property solely to generate a secondary income. That’s very common nowadays. 

But with consumer Buy to Let,  the client already owns the property that will be let. They may have inherited it, or have lived in the property themselves. A common example of consumer Buy to Let is a ‘let to buy’ which is becoming more and more common.

With Let to Buy, you rent out your current home and then purchase a new property. But because you’ve previously lived there, technically this falls under the consumer Buy to Let rules.

How does someone become an Accidental Landlord?

The most common way, as we mentioned, is when you’re inheriting a property. Some research was done on this relatively recently, and it’s not as common as you might think

So if you are one of the minority, you have the option of moving into that property, by all means. But if you go down the route of renting the property out that’s when you would become an Accidental Landlord.

What criteria do I need to meet for a consumer Buy to Let?

There are two key criteria for a consumer Buy to Let – one is that you’re an accidental landlord who owns property that will be let out. Secondly, you need to be letting out a property that you or a family member has lived in before. These two factors are what triggers the consumer Buy to Let rules.

The reason why this distinction exists is that the FCA understands that this is all a bit of a grey area. With a consumer Buy to Let you get added protections from FCA regulations, whereas with standard Buy to Let mortgages aren’t regulated, as they’re solely for business purposes. 

Because you’ve either lived in the property previously or you’ve stumbled across this additional source of wealth, you qualify for additional protection from the FCA.

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How do I get a consumer Buy to Let mortgage?

The process itself is very similar to getting a standard Buy to Let or a residential mortgage. But if you were to walk into any high street bank and explain that you’re an accidental landlord, it’s unlikely they could help.

You might explain to the mortgage advisor that you’ve inherited a property from a family member, and you have no intention of moving into it. It’s too far from work, from your children’s school, but instead of selling the property you would like to rent it out. There’s a reasonable chance that the mortgage advisor will say that they can’t offer you a mortgage on that basis. 

So that’s where a broker steps in: we have access to thousands of products and dozens of lenders, so we can assess your circumstances, and confirm that you’re in a consumer Buy to Let scenario. Then we can find you the most suitable lender at that time to meet all your requirements.

How does remortgaging a consumer Buy to Let work?

The remortgage process is similar whether it’s for a residential Buy to Let or consumer Buy to Let. In fact, in the accidental Landlord scenario, you will start off in a remortgage situation, as you’re not going to be buying the property – you will already own it. 

The good news is that it is virtually the same in terms of the actual process. The only quirk could come where the inherited property is now owned by more than one person. 

For example, if my brother and I were to inherit our family property, I might decide that I want to sell it while my brother wants to rent it out. What he could do, assuming he meets  affordability requirements and mortgage criteria, is to buy me out of my share of the property. 

That way, I still get my wish and get some money out of the property, and he gets his wish of renting the property out. We can help you through that process.

How can a mortgage broker help with a consumer Buy to Let?

We can assist in any circumstances, and help you find the right way forward.  If you’ve inherited property and want to rent it out, that’s straightforward, especially if your tenant is not related to you. In that case we’ll arrange a standard Buy to Let mortgage.

Another scenario is that you’ve inherited a property, or you’re planning to buy one, and a dependent relative will live there. For example, if you’re well off and have a child going to university, you could decide to buy a property in that location, rather than pay for student accommodation. 

That then becomes a bit more tricky because the mortgage will be based on your affordability, rather than rental income. You might already have a mortgage, you might have car finance or a few thousand pounds on credit cards. All these things add up, and then adding a second mortgage on top of it could significantly limit your affordability. 

So renting out a property to an independent tenant, who’s not part of the family, is quite easy and straightforward. It’s when you’re looking to move a family member in that it gets a bit more tricky. 

But that’s where we’re best placed to help – we can find the right solution, whatever the scenario. 

Your property may be repossessed if you do not keep up with your mortgage repayments. 

Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority