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Consumer Buy-to-let Mortgage

By Kev TilleyCeMAP

Last Reviewed: 6th January 2022

Gone are the days when purchasing a buy-to-let property was a cost-effective way of getting onto the property ladder. Recent changes have impacted the complexities of the process.

Stamp duty increases, tax reviews, and changes to the lending criteria exacted by mortgage providers have meant that purchasing a property for buy-to-let purposes is now much more challenging.

Another change to the market was the consumer buy-to-let mortgage, a form of borrowing aimed at people who have become accidental landlords.

This is the term given to people who inherit property or perhaps move in with a partner and rent out their property on a short-term basis.

What is a Consumer Buy-to-let Mortgage?

A consumer buy-to-let mortgage is specifically designed for people who have become accidental landlords. As mentioned previously, this can happen through property inheritance or when people rent out their property for a short period.

Other forms of consumer buy-to-let mortgages included purchasing a property with the intent to let it to a family member or if being a landlord is not your primary occupation.

In more specific terms and according to the Mortgage Credit Directive Order 2015, a consumer buy-to-let (CBTL) mortgage contract is defined as – “a buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purpose of a business carried on, or intended to be carried on, by the borrower.”

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Consumer buy-to-let vs. Standard buy-to-let

The primary differences between these two mortgages are who they are designed for and how they are regulated.

Standard buy-to-let mortgages are aimed at landlords investing in property to let to prospective tenants. These landlords purchase properties for the sole purpose of letting them to tenants as a form of income. They are regarded as professional landlords.

In contrast, consumer buy-to-let mortgages are geared towards the individual looking to rent property to family members or those who fall into the accidental landlord category. As a result, the income generated from the rental agreement is not their primary source of income.

The FCA regulates consumer buy-to-let mortgages (Financial Conduct Authority,) while standard buy-to-let’s are unregulated. This is because investors purchasing a property specifically for buy-to-let purposes do not require the same amount of protection.

This consumer protection protects buyers from the dangers of mis-selling and poor advice by giving them the security of FCA regulated contracts and cover provided by the FSCS (Financial Services Compensation Scheme)

Next Steps for Accidental Landlords

Knowing what to do when you become an accidental landlord can be confusing. However, it is your responsibility as a landlord, accidental or otherwise, to ensure you understand your legal obligations and avoid being in breach of your agreement.

Below is a list of steps you should take to ensure you are not breaching your mortgage terms.

  • Notify your current mortgage lender of your situation
  • Request permission to let out your property
  • Contact a consumer buy-to-let advisor

Note that you will breach your mortgage agreement if you let out a property with a residential mortgage agreement. Invariably this breach can allow the lender to demand full payment of the entire outstanding debt as a lump sum.

Unfortunately, most people don’t have access to this level of funds and may default on payment, affecting their credit rating and possibly losing their homes.

If you are unsure of the steps you need to take, contact a consumer buy-to-let advisor for expert advice. Always apply the golden mortgage rule; if in doubt, ask.

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What Are the Eligibility Criteria for a Consumer Buy-to-let mortgage?

The below criteria will help you determine whether you are eligible for a consumer buy-to-let mortgage.

  • Property rental is not your primary occupation.
  • You or a close relative previously lived in the property.
  • The property was not purchased to let it out.
  • You do not own any rental properties.

Regulations governing consumer buy-to-let mortgages prevent applications in the following circumstances.

  • Property rental is your primary occupation
  • You own other rental properties which are rented out
  • This is a new property that you plan to rent out once purchased

Lenders recognise that each buyer’s circumstances are unique; therefore, if you are unsure whether you qualify for a consumer buy-to-let mortgage, speak to an experienced mortgage adviser.

Which Lenders Offer Buy-to-let Mortgages?

BTL mortgages are pretty popular and are offered by many of the leading mortgage lenders in the industry. Big names such as Clydesdale Bank, Virgin Money, and Santander are some of the lenders that offer a BTL mortgage.

However, going directly to large lenders may mean you are only offered the products they provide, meaning you may miss the opportunity to compare the market. Comparing the market is crucial to ensure you get the best deal possible.

To do this, you would need to discuss your mortgage requirements with a mortgage broker specialising in consumer buy-to-let mortgages. This will allow you access to expert advice and the full quota of products you qualify for, resulting in an informed decision.

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Do I need Insurance as a Consumer Buy-to-let Landlord?

Unfortunately, your standard home insurance policy probably won’t cover the property if you’re letting it out to tenants. This means you will need a policy that suits the specific requirements of your property while providing you with the best deal.

We recommend comparing different insurers to obtain the right level of insurance at the best possible price.

Types of insurance policies a consumer buy-to-let landlord should consider are as follows:

  • Rental protection insurance
  • Public liability insurance
  • Landlords building /content insurance
  • Legal expense cover

These types of insurance mean you, as the landlord, are covered in most instances when things don’t go quite to plan.
Last word

A consumer buy-to-let mortgage is an excellent option for those looking to rent to close family or have inherited property unexpectedly.

Buyers are protected by the regulations of the FCA (Financial Conduct Authority) and covered by the FSCS (Financial Services Compensation Scheme).

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

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