There have been significant changes to the buy-to-let market in recent years. Overhauls to the tax rules, increases in Stamp Duty and changes to lender criteria have made it more complex than ever before to own a buy-to-let property. One key change has been the addition of consumer buy-to-let. This is a form of regulated borrowing that applies to a group of buyers we call ‘accidental landlords’. Read on to learn more about what’s involved.
What is a consumer buy-to-let mortgage?
A consumer buy to let mortgage is for the classic ‘accidental landlord’. An example would be someone who inherits a property or moves in with a new partner and decides to rent out their property for the short-term. Buy-to-let mortgages aren’t subject to regulations by the Financial Conduct Authority (FCA) but this mortgage type is regulated like a regular mortgage.
The FCA introduced this new legislation in 2016 with the aim of providing superior protection for borrowers who have become landlords unintentionally. These individuals are likely to be more vulnerable so the FCA took action to offer them some protection.
Incidentally, if you purchase a property to let to a family member this is also classified as a regulated buy-to-let mortgage.
What is the difference between consumer buy-to-let and standard buy-to-let?
Now that you have a better understanding of what consumer buy-to-let means, let’s analyse a few of the key areas where they differ from a standard buy-to-let. The fundamental difference is the ways in which they are regulated:
- Consumer buy-to-let mortgages are subject to the same FCA regulations as residential mortgages.
- ‘Deliberate’ landlords, meaning those who specifically bought property as a buy-to-let investment, don’t need that level of protection, so they remain unregulated.
Consumer protection is an additional safety net for customers who have unintentionally ended up running a property for income. They receive the full protection of FCA-regulated contracts, including being covered by the Financial Services Compensation Scheme (FSCS).
Who offers consumer buy-to-let mortgages?
Some of the biggest names in the buy-to-let world now provide consumer buy-to-let mortgages, as well as a selection of specialist lenders. Depending on other factors, you should have a pretty good selection of lenders you could get a mortgage from, though perhaps not as diverse as with more mainstream mortgage types.
Though the FCA doesn’t regulate the buy-to-let mortgage market, mortgage brokers must have supplementary consumer buy-to-let permission from the FCA to give advice on these cases, Think Plutus is registered to provide advice on consumer buy to let mortgages. Given the concept only appeared a few years ago, we can expect to see consumer buy-to-let mortgages offered by more lenders as time passes.
What to do if you have become an accidental landlord
Your first move should be to inform your mortgage lender of the change in your circumstances. You will need to obtain consent to let your property to tenants. If you let out your property whilst on a residential mortgage, you will be in breach of the mortgage terms, so it is absolutely essential that you contact your lender right away to inform them of your situation.
Some lenders may increase your interest rate whilst consenting to you letting the property. Others might let you stay on the same deal but charge you a fee for the administration. If your lender refuses to give you the consent you need, you will have to remortgage to a consumer buy-to-let product.
If you are in this situation and uncertain of what to do next, contact Think Plutus and we can offer expert consumer buy-to-let advice. We will assess your case, offer our insight and help you find the lenders who specialise in the type of remortgage product you need.
Am I eligible for a consumer buy-to-let mortgage?
You should meet the criteria for a consumer buy-to-let mortgage if:
- You had no intention of letting out the property in question when you bought it.
- You are not a full-time landlord.
- You or a relative previously lived there.
- There are no other rental properties under your ownership.
Under consumer buy-to-let regulations, you are not eligible to apply for a consumer buy-to-let mortgage if:
- You are buying a new property with the intention of letting it out.
- You are a landlord by profession.
- There are already buy-to-let properties under your ownership which are being let out.
Can I remortgage to consumer buy-to-let with bad credit?
If your lender insists that you remortgage your property onto a buy-to-let but your credit history is not the best, you will have a smaller selection of lenders to choose from. However, this doesn’t mean that you have no chance of getting a consumer buy-to-let mortgage.
The mortgages available to you will depend on the nature of the credit issues you have had. Certain lenders are very strict and simply won’t accept an application with anything but the most minor of credit issues. Others are more accommodating and may consider your application depending on what the credit issues are – for example, a missed mobile phone payment is less severe than being declared bankrupt. The length of time that has passed since the issue was registered is also important – the longer ago it was, the better.
Here is a list of credit issues that a buy-to-let lender may be happy to overlook if you can meet other eligibility requirements:
- Poor credit score
- Mortgage arrears
- Individual Voluntary Arrangements (IVA)
- County Court Judgements (CCJ)
- Debt Management Plans (DMP)
It’s a good idea to get a picture of your credit file early on. The three main credit score agencies used by lenders are Equifax, Experian and CallCredit, and you can get a free credit score from all of them alternatively check out CheckMyFile. Note that the credit report that a lender will obtain is more comprehensive than the simple credit score, but this is a good place to start.
What else do I need to know?
Insurance is one of the most important considerations. If you are letting a property to tenants, it is unlikely that standard home insurance will offer sufficient cover. There are specialist landlord insurance products designed for landlords so it’s a good idea to educate yourself on what’s required.
An insurer may be able to adapt your existing policy to cover the new needs but it’s always a good idea to shop around to see if a better deal is available. You should always have the best standard of cover in place – Think Plutus can advise you on this front as well.
Speak to the experts
As consumer buy-to-let is a relatively new sector of the mortgage market, it can be difficult to find out everything you need to know. The team of expert mortgage advisers at Think Plutus have experience in this type of situation and are qualified to offer real advice you can depend on. We have all the knowledge and tools to ensure you get everything sorted in the best possible way and at the best price available. Regardless of your circumstances, there will be an option out there for you. Let us find it by contacting us today and telling us about your situation. To find the best consumer buy-to-let mortgage with minimal hassle, Think Plutus.