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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 15th April 2021*

The buy-to-let (BTL) 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 consumer buy-to-let – a type of regulated borrowing mainly for a group of buyers known as ‘accidental landlords’ and people who want to let a property to members of their family.

In this article you can find out:

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What is a consumer buy-to-let mortgage?

A consumer buy-to-let mortgage is a type of mortgage for someone who has become an ‘accidental landlord’ – for example, if you inherited a property or moved in with your partner and rented out your property in the short-term. Buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA), however, this type of mortgage is regulated like a regular mortgage.

The FCA introduced this new legislation in 2016 to provide greater protection for borrowers who may not have intended to be landlords and, therefore, might be more vulnerable.

If you buy a property to let to a family member or being a landlord isn’t your main occupation, this might also be classed as consumer buy-to-let.

How does consumer buy-to-let differ from standard buy-to-let?

The key differences between these two types of buy-to-let mortgage is who they are aimed at and the way they are regulated. Consumer buy-to-let is largely geared towards accidental landlords and people letting to close family, while standard buy-to-let is aimed at pretty much everyone else who’s looking for an investment property to let to tenants.

Regulation and consumer protection

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 investment) don’t need the same level of protection and, as such, are still unregulated.

Consumer protection offers additional safeguarding 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 Financial Services Compensation Scheme (FSCS). This will protect you against bad advice and misselling, among other things.

Who provides consumer buy-to-let mortgages?

Some of the biggest names in buy to let are offering consumer BTL mortgages, alongside several specialist lenders. Providers include Santander, Virgin Money, Clydesdale Bank, Bluestone, Kensington Mortgages and many more. Approaching one of these lenders directly is not recommended, as this means you would only have access to their products and potentially miss out on a better deal elsewhere. Speaking to a mortgage broker who specialises in consumer BTL before you press ahead will give you access to all of the products that you qualify for, along with expert advice.

While the FCA doesn’t 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 relatively new, we can expect to see more consumer buy-to-let mortgage lenders come to market going forward.

What to do if you become an accidental landlord

The first thing you must do is notify your mortgage lender of your change in circumstances and obtain consent to let your property to tenants. Letting out a property with a residential mortgage will be in breach of the mortgage terms, so it’s vitally important you contact your lender to let them know your plans. Breaching the terms and conditions of your mortgage could give the lender the right to recall the entire debt in one go, and this would make most people default and harm their credit report.

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’ll 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 mortgage products.

Consumer buy-to-let mortgage eligibility criteria

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.

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 plan to let it out.
  • You’re a professional landlord.
  • You already own multiple buy-to-let properties and are letting them out.

Can you remortgage to consumer buy-to-let with bad credit?

Yes. 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 and the reason behind it. Some lenders are particularly strict and won’t accept your application if you have anything more than the smallest of issues, while others might be more understanding if your bad credit was the result of an unforeseen life event, for example.

Lenders who specialise in bad credit buy-to-let mortgages 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).

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.

Get your credit rating

Insurance for consumer buy-to-let landlords

One of the most important things for consumer buy-to-let landlords 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. 

Typical insurance policies that a consumer BTL landlord might need include…

  • Landlords buildings & contents insurance (can be separate policies or combined)
  • Rental protection insurance
  • Public liability insurance
  • Legal expense cover

You can read more about buy-to-let insurance and landlord insurance in our standalone guides through the links we’ve provided, or save time and hassle by talking to one of the insurance experts we work with. They can help you find the cover you need and will search the entire market to make sure you get the best possible deal for it.

Speak to an expert

If you’ve become an ‘accidental landlord’ or want to let a property to family members, a consumer buy-to-let mortgage could be the right option for you, but it pays to seek professional advice before you make that decision. Speaking to the right broker – one who specialises in consumer buy to let mortgages – before you proceed could save you time, money and potential marks on your credit report.

We offer a broker-matching service that will find the right broker and match you with them free of charge. If you’re an accidental landlord, we’ll introduce you to an expert who helps people in the situation every day, and if you’re buying a property to let to a family member, we’ll find you an advisor who specialises in this type of arrangement.

They will offer you expert advice, help you find the best mortgage product for your needs and circumstances and guide you through the application process. Call 0808 189 2301 or make an enquiry for a free, no-obligation chat for you perfect broker today. 

Updated: 15th April 2021
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FCA disclaimer

*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 information 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.

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