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What is the Difference Between Consumer Buy-to-Let and Regulated Buy-to-Let Mortgages?

Learn about the differences between consumer buy to let and regulated buy to let mortgages. Find out what sets them apart and how they are evaluated.

What is the Difference Between Consumer Buy-to-Let and Regulated Buy-to-Let Mortgages?

When it comes to mortgages, there are two main types: consumer buy-to-let and regulated buy-to-let. The main difference between the two is that the consumer version is regulated by the Financial Conduct Authority (FCA), which provides additional protection than what would normally be available. The key distinction between buy-to-rent and consumer-let-to-buy transactions has to do with regulation. Consumer buy-to-let mortgages are always regulated, while some lenders may not require rent-to-buy mortgages to be regulated in certain circumstances.

For instance, if you are already a buy-to-rent landlord, a lender may decide that placing a purchase-to-rent mortgage on your current residence does not need to be a regulated transaction. This is because they believe that your experience with real estate investing is sufficient to not require the extra protection that regulated mortgages provide to borrowers. Regulated purchase-to-rent mortgages are evaluated differently than conventional purchase-to-rent mortgages. Generally, conventional purchase to rent is calculated based on the rental income of the property, and not of the applicant. On the other hand, regulated buying to rent is largely calculated based on the borrower's income and affordability.

This is because lenders want to make sure that the borrower can afford the mortgage, even if the property does not generate rental income. Some lenders may require borrowers to earn at least £30,000 per year in order to be approved for a regulated buy-to-rent mortgage. If your plans have changed and you are now an “accidental landlord”, you will need to remortgage based on an offer to buy for rent with a consumer. Another common scenario in which consumers buy to rent, which can affect affordability estimates, is if you move into your partner's current home and want to rent yours. The term “regulated” is used because conventional purchase-to-rent mortgages are not regulated. Whether or not you can get a purchase-to-rent mortgage depends on several factors, including your income, other debts you have, the deposit you can put down, and the rental income you can expect to receive. If a loan to a borrower who buys for rent is secured on commercial property, the loan is not a residential mortgage agreement and this chapter does not apply.

It's important to note that regulated buying to rent only applies to immediate family members and not cousins, relatives, uncles and aunts. If you inherit a house and it still has an outstanding mortgage, you can re-mortgage it with a buy-to-rent offer in order to rent the property. If a purchase-to-rent mortgage is regulated, it is governed by stricter guidelines than a normal purchase-to-rent. Standard buy-to-rent mortgages are intended for landlords who invest in properties to rent out to tenants. What sets apart a consumer who buys to rent from a rent to buy or a standard purchase to rent for mortgage lenders are the circumstances in which the borrower came to purchase the property.

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