The buy to let market has changed considerably in recent years. Tax overhauls, a Stamp Duty increase and changes to lender criteria have meant owning a buy to let property is more complex than ever. One particular change has been the introduction of so-called consumer buy to let - a regulated type of borrowing for a group of buyers known as ‘accidental landlords’.
Having only been introduced in 2016 as part of the Mortgage Credit Directive, consumer buy to let is still a relatively new concept. As such, it is not yet widely understood. The experts we work with are specialists in the buy to let field and can help you understand how regulated buy to let works - make an enquiry and they will be more than happy to talk you through it and connect you with lenders who specialise in this mortgage product.
What is a consumer buy to let mortgage?
The term consumer buy to let was introduced when the Financial Conduct Authority (FCA), the financial services regulator, introduced new legislation in the mortgage industry called the Mortgage Credit Directive. The aim was to provide greater protection for borrowers who may not have intended to be landlords and, therefore, might be more vulnerable.
The Mortgage Credit Directive gives this consumer buy to let definition: “A buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.”
Essentially, a consumer buy to let mortgage is for someone who has become an 'accidental landlord'.
There are plenty of reasons why someone might accidentally find themselves with a property to rent out - if you inherited a home, for example, or you and your partner move into together, having both owned your own homes. If you buy a property to let to a family member this will also be classed as consumer buy to let.
How does consumer buy to let differ from standard buy to let?
Now that we’ve covered consumer buy to let’s meaning, it’s time to take a closer look at this product and how it differs from a standard buy to let mortgage.
The key difference between the two is regulation. Consumer buy to let mortgages are regulated, by the FCA, in the same way as residential mortgages.
‘Deliberate’ landlords (i.e. investors who bought the property specifically to run as a buy to let) don’t need the same level of protection and, as such, are still unregulated.
The point of this was to offer additional protection to customers who have found themselves running a property for income as a mini business, by giving them the protection all FCA regulated contracts offer, including cover by the FSCS.
Are there many consumer buy to let lenders?
It’s certainly an area that is growing and some of the biggest names in buy to let are offering consumer BTL mortgages, as well as several specialists.
While the FCA does not regulate this market sector, brokers require supplementary consumer buy to let permission to advise on such cases, and the advisors we work with can connect you with the firms that have this.
Given the concept is only two years old we can expect to see more consumer buy to let mortgage lenders come to market going forward.
What steps do I need to take if I must become an accidental landlord?
At the very least you’ll need to notify your mortgage lender to obtain consent to let. Letting out a property with a residential mortgage will be in breach of the mortgage terms. You must contact your lender to let them know your plans.
In some cases the lender may increase your interest rate upon giving you consent to let, or perhaps keep the same deal but charge an admin fee. If your lender does not give you consent to let you will have to remortgage onto a consumer buy to let product.
If you’ve found yourself in this situation and are still unsure what to do, get in touch and the consumer buy to let advisors we work with will assess your case, offer expert insight, and can connect you with lenders who specialise in these remortgage products.
Will I be eligible for a consumer btl mortgage?
Consumer buy to let regulations state that you cannot apply for a consumer buy to let mortgage if any of the following applies to you…
You are buying a new property and planning to let it out
You’re a professional landlord
You already own multiple buy to let properties and are letting them out
You should be able to apply for a consumer buy to let mortgage if…
You did not buy the property in question with the intention to let it out
Renting out property is not your main occupation
You or one of your relatives previously lived there
You don’t own any other rental properties
Can I remortgage to consumer buy to let if I have bad credit?
If the lender insists the property is remortgaged onto a buy to let and you don’t have the best credit history, your choice of lenders will reduce, but that doesn’t mean getting a consumer buy to let mortgage will be impossible.
The mortgages available to you will depend on how bad your credit history is. Some lenders are particularly strict and won’t accept your application if you have anything more than the smallest of issues.
Others are more lenient, and may still approve your application depending on what the adverse credit is (a missed phone bill payment is less severe than a recent bankruptcy or repossession, for example) and how long ago it was registered also plays a part (the older the issue, the better).
Below is a list of credit issues some consumer buy to let lenders might be willing to overlook, providing you meet their other eligibility requirements:
Low credit score
County Court Judgements (CCJs)
Individual Voluntary Arrangements (IVAs)
Debt Management Plans (DMPs)
It helps to have a good idea of your credit situation to begin with. You can access your credit score for free on all three of the main credit score agencies that lenders will use - CallCredit, Equifax and Experian, or better yet, make an enquiry and we’ll do this for you.
Get your credit rating
What else should I be aware of?
One of the most important things to consider is insurance. If you let your property to tenants, your standard home insurance is unlikely to cover it. Your insurer may be able to adapt your policy to cover your new needs but it’s always advisable to shop around to make sure you’re getting the best deal – and the best standard of cover. The insurance experts we work with can help you to do just that, so get in touch and they will search the whole of the market for the best deals available to you. Read more about Buy to let Insurance Here.
Speak to a consumer BTL expert
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Some types of buy to let mortgages are not regulated by the FCA.
Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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