If you intend to give your property to a member of your family and use a mortgage for that purpose, you will most likely need a regulated Buy to let mortgage.
It is not uncommon for family members or close friends to rent from others. The benefits of having family members as tenants are great, but there are also risks, especially for mortgage lenders.
You must seek professional advice before you sign any agreements if you need a buy-to-let mortgage. You could lose your application for a mortgage if you apply to the wrong lender.
What is a regulated purchase to let mortgage?
A regulated buy to let mortgages is used for property rentals to family members. The reason the term “regulated” was used is that conventional buy-to-let mortgages haven’t been regulated.
Buy-to-let mortgages are subject to tighter guidelines if they are regulated.
Here are some examples of regulated buy and let:
- A landlord rents out a property for sibling/siblings
- Parents may rent out their child’s property.
- A landlord is renting out a property for parents
- Grandparents renting from their grandsons/daughters
How does the business and regulated buy to let mortgages function?
Regulated mortgages for buy-to-let are available to landlords who wish to buy a property to lease out to tenants.
Buy to let mortgages may be offered as commercial loans, rather than residential ones. Potential rental income can also be taken into consideration when the lender assesses the affordability criteria.
However, buy to rent mortgages can now be divided into two different categories:
Business – These are the same rules as with old buy-to-let mortgages
Consumer – These offer consumer protection to ‘accidental’ landlords
How do regulated mortgages for buy-to-let work?
Consumer buys to lease mortgages are relatively new and were first introduced on the market in 2016.
They are regulated in the same way those residential mortgages. Therefore, the borrower receives greater protection than with a traditional ‘business’ buy-to-let mortgage.
It’s not that they are easier to obtain than a commercial buy-to-let mortgage. To qualify for a consumer-buy to let mortgage, you’ll need to meet stricter affordability standards. These criteria will look at your income and what rent you can afford. This process is the same as taking out a standard mortgage for a home purchase, with a few more requirements.
Can I obtain a buy-to-let mortgage?
It is dependent on several factors such as your income, other debts, deposit amount, rental income, and how much you can afford to buy a mortgage to rent.
If you have the following circumstances, you can apply for a buy-to-let mortgage.
- You plan to rent the property after you purchase a new home.
- You are a professional landowner
- You already have multiple rental properties
- You can apply for a consumer mortgage to buy and let if the following conditions are met:
- You didn’t acquire the property (or buy a brand new property) to rent it.
- Letting out property isn’t your main job
- You or a family member has lived on the property before.
- You don’t currently own any other rental properties
Do you want a mortgage for your business?
A business purchase-to-let mortgage is necessary if your intention to rent out a property.
This type of mortgage is considered a business loan. Therefore, you will need to make a business proposal before you approach a lender for one.
If, however, you want to rent your house but don’t reside there currently, you will need to apply for a consumer purchase-to-let mortgage. It’s not possible to just leave your mortgage in place. Your contract is most likely in violation if you let go of your home without notifying the mortgage lender.
- Regulated mortgages to buy and let – If you are traveling
If you intend to rent your home to cover your mortgage expenses, you can be eligible under a consumer purchase to lend a mortgage.
- If you inherit a relative’s property, you may qualify for a regulated buy to rent mortgages
If you inherit an estate and there is still a mortgage on the property, you may be able to remortgage it to a consumer purchase to let deal. You can then rent the property out.
- Regulated buy to rent mortgages – Selling but not moving
If you want to relocate to a property and don’t want your home to be sold, you can still pay the mortgage. You can also let your home out and transfer your residential debt onto a consumer purchase to let deal.