Consumer Buy-To-Let Mortgages

If we use as an example the unfortunate event of a family member passing away, many people may find themselves in the complicated position of having an inherited property. 

This can be troubling for those who can’t live in or visit the property frequently, causing it to remain unoccupied. For such people, opting to rent the house out is a good option instead.

When such “accidental landlords” are looking to rent the property out due to their personal circumstances, a buy-to-let mortgage type known as a consumer buy-to-let mortgage may be the best option/eligible. The trouble is, this mortgage type differs significantly from standard buy-to-lets, which can complicate matters as primarily buy to let loans are not classed as regulated where in this instance you may be eligible for protection from the financial conduct authority if it meets the consumer buy to let definition. 

So, if you could be considered an accidental landlord and are looking to mortgage it, you can benefit from learning about consumer buy-to-let (CBTL) mortgages. Here’s all you need to know about such mortgages and the criteria you need to fulfil for them.

Defining A Consumer Buy-To-Let Mortgage

In 2016, the UK government introduced the CBTL variation to the buy-to-let mortgage to cover homeowners who:

• Are “accidental landlords”, having received the property in inheritance
• Want to let a property to a family member (also potentially known as a regulated BTL mortgage)
• Are occasional or non-professional landlords

The circumstances surrounding a CBTL could occur because of several reasons, ranging from job relocation to the inability to sell the old house. As such, the terms defined in the Mortgage Credit Directive Order of 2015 dictate that this mortgage is a contract with no business purposes in mind.

In a similar vein to residential mortgages, CBTL mortgages are regulated by the Financial Conduct Authority (FCA). This is because the organisation deems CBTL mortgages to require more consumer protection than standard buy-to-let mortgages.

What this additional layer of regulation does is it offers “accidental landlords” additional protection from unfair buy-to-let practices.

How CBTLs Differ From Standard Buy-To-Lets

FCA regulations aside, there are two chief differences between standard buy-to-lets and CBTLs.

Firstly, there are no strict definitions around standard buy-to-let mortgages. CBTL mortgages, on the other hand, have stricter definitions such as family members and accidental landlords only in order to be eligible for the additional Financial Conduct Authority protection.

And secondly, a CBTL mortgage requires the inheritor or a related family member to have lived in the property since its date of purchase or have another close association with the property that would make the BTL mortgage an out and out business loan. There are no such requirements for standard buy-to-lets.

The Loan-To-Value Ratio Of A CBTL Mortgage

In general, one can expect 75% to be the highest loan-to-value ratio that a lender will offer. This means that the lender will offer 75% of the property value as a loan. A specialised mortgage broker may be able to look at options for you potentially at a higher LTV. 

Eligibility Requirements

Since CBTLs are naturally a niche subset of buy-to-lets, very few people are eligible for these mortgages as there circumstances have to be fit the scenario. To qualify for a CBTL mortgage, you will need to usually fulfil the following conditions:These include but are not limited to, 

• Draw income from means excluding rental properties (minimum income requirements). 
• Inherit the property and have the intention to let it out
• For you or a family member to have lived in the house before acquiring it

Lenders as with any mortgage will also examine your income, age, debt, credit history, outgoings, and deposit amount after you apply for a CBTL. You may also have to meet additional criteria that may vary between lenders. These include but are not limited to, :

• Your income or expenditure. 
• The property becoming a part of a let-to-buy arrangement
• Maintaining a minimum rental income of 125-145% of the mortgage value
• The property is being remortgaged instead

Interest Rates 

A consumer buy-to-let offers typically within the current climate will have higher interest rates than a standard residential mortgage. As with any mortgage loan, for lower interest rates, the lender must see you as a lower risk. This can be done through higher deposits, a spotless credit history and a reliable income.

The Process Of Getting A CBTL Mortgage

If you meet the criteria listed above, you can consider applying for a CBTL mortgage. The first step in most cases for this is to get an estimation of your rental income well before you apply.

It’s critical to know how much income you will draw in the form of rent from the property. Lenders make a decision on such mortgages based on the rental income, after all. So, consider having your property examined by an estate agent for an accurate assessment of your rental income. Based on the estate agent they could potentially provide you an ARLA letter stating the rental valuation which could be used for a new mortgage application if the lenders requires it.  

If you’ve inherited the property, and there was a mortgage charged against it, get in touch with the mortgage lender of the property for more details of the existing mortgage. The lender will let you know whether the property can be remortgaged onto a CBTL or not, in which case you will need to file another application with an alternative lender. 

In the event that you can’t remortgage the property onto a CBTL, you may have to remortgage with another lender. Alternatively, you can rely on other ways to pay off the mortgage, potentially if any are available. 

Once you’ve ascertained all the information, you can prepare bank statements, address proof and proof of income, in addition to other standard documentation. You will also be required to present a credit score to verify your credibility as a borrower typically when the lender does your agreement/decision in principle. It’s important to correct any errors before starting the application process.

And lastly, one can get in touch with a mortgage broker who has dealt with CBTLs before. A qualified broker will be able to assess the requirements and provide all the necessary help to a non-professional landlord.

Remortgaging A CBTL Property

Remortgaging a CBTL property is a decision you may need to make in the future. There are two reasons why you may want to do this, each with different benefits. 

The first reason is that you can use the extra equity for other purposes should you wish. You can use the cash you receive from a remortgage for renovations, for instance. And the second reason for this is to switch to a residential mortgage, if you’re looking to move into the CBTL property at a later date.

In either case, you can get in touch with the current lender to know whether they are willing to remortgage or not. Once they confirm, you can contact a mortgage broker to learn about all the lenders who offer the best rates or complete the re mortgage yourself if you have confidence to do so.  

This information can allow you to draw a comparison between the current lender and the ones available on the market.

Once you’ve made the decision to remortgage, you will need to fill out the mortgage application once again. Be sure to keep the eligibility criteria in mind, which are different for residential mortgages. 

The Lenders That Offer CBTL Mortgages

There are not many lenders on the market who can offer CBTL mortgages as they themselves will need the permissions from the Financial Conduct Authority to do such business, some BTL lenders only operate in the unregulated space.  So, you may have to scour the market thoroughly to find those who offer the right mortgage products.

Certain high-street lenders like TSB, Santander, and Metro Bank accept CBTL applications. You can also expect specialist lenders like BM Solutions and the Teachers Building Society to do the same. These are examples of lenders who are open to the regulated market of buy to let mortgages. 

Consider the rates these lenders offer and the factors they scrutinise before choosing to apply for a CBTL mortgage with one of them. This can become quite complex the more you explore the lenders, so it may take some time to reach a concrete decision. 

You can consult a broker to simplify matters a little and support you. Certain lenders don’t deal with an applicant directly, so hiring a broker can widen your horizons to an extent.

FAQ

1. Do consumer buy-to-let mortgages require landlord insurance?

Yes, one can expect lenders to require landlord insurance as a part of mortgage conditions. 

2. What insurance can I get as a landlord?

You can get insurance for rental protection, public liability and landlords’ building insurance.

3. How much do I need to deposit for a consumer buy-to-let mortgage?

A consumer buy-to-let mortgage will require at least 25% of the property value to be deposited upfront. This is often taken from the equity in the property during remortgages. 

To Sum Up

Consumer buy-to-let mortgages are often a result of an unexpected inheritance, or other circumstances which make the borrower an ‘accidental landlord’, which can be quite stressful for non-professional landlords. Should you find yourself in such a predicament, it’s important to explore all the options carefully before making a decision.

Despite being a niche mortgage type, CBTL mortgages can be a saving grace for those who fit the accidental landlord definition..

It’s better to check all the information related to a CBTL before proceeding to choose a lender.

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.