Are you considering investing in a buy-to-let property? If so, it's important to understand the regulations that come with this type of investment. Buy-to-let properties are regulated in the same way as residential mortgages, meaning that the borrower enjoys more protection than they would with a standard commercial purchase-to-rent mortgage. A regulated buy-to-rent mortgage is used when renting a property to an immediate family member. This type of mortgage is not regulated in the same way as a conventional purchase-to-rent mortgage.
The land stamp tax (SDLT) for purchase-to-rent properties represents an additional 3%, in addition to the current SDLT rate bands for properties over 40,000 pounds sterling. Regulated purchase-to-rent mortgages are a specialized product for properties that are going to be rented to members of the borrower's family. Capital Gains Tax (CGT) is also applicable when buying and renting second properties. If you pay taxes at a basic rate, CGT is charged at 18%, and if you pay taxes at a higher or additional rate, you will be charged 28%.
Therefore, a CBTL mortgage agreement is a purchase-to-rent mortgage agreement that the borrower does not enter into wholly or predominantly for commercial purposes carried out or intended to be performed by the borrower. As with other purchase-to-rent mortgages, the interest rate on a consumer purchase-to-rent mortgage is likely to be higher than that of a conventional mortgage. It's a good idea to talk to a mortgage broker before taking out a purchase-to-rent mortgage, as they will help you choose the most appropriate offer for you. The regulation comes from the Financial Conduct Authority (FCA) and there are more obstacles that borrowers have to overcome compared to a normal buy-to-rent mortgage. The strictest lenders will require requirements such as borrowers earning a minimum of £30,000 a year in order to apply for a regulated buy-to-rent mortgage.
In addition, switching to a regulated buy-for-rent standard one is likely to have some advantages. If the relative you're renting to isn't a sibling, parent, grandparent, or child, all you need should be a normal or purchase mortgage for consumer rent. Affordability assessments of regulated buy-to-rent mortgages are very different from those of conventional purchase-to-rent mortgages. Landlords who choose not to sell their rental properties may attempt to increase the rents they charge to maintain their original expected profit margin under the previous tax regime. There are some lenders, such as Vida Home Loans, Natwest and CHL Mortgages, that don't offer purchase-to-rent mortgages to consumers, which means that the group of lenders will be smaller. If you're considering remortgaging your purchase-to-rent contract in order to generate money to buy another rental property, it's important to seek professional advice first.
A qualified mortgage broker can help you understand all of your options and make sure you make an informed decision.