The mortgage world is full of jargon, so it’s easy to get confused about the difference between consumer buy to let and let to buy! Experienced residential and buy to let broker, Erin Gallacher, explains the differences between these two frequently confused buy to let mortgage types.
What is a Consumer Buy to Let?
What differentiates a consumer buy to let from a let to buy or standard buy to let for mortgage lenders is the circumstances in which the borrower came to acquire the property. The three main criteria lenders look at are:
- Whether you (the borrower) or a relative have lived in the property since purchase
- Whether, when you purchased the property, the intention was not for it to be a buy to let
- Rather than purchasing, you inherited the property
Ultimately, if the intention for the property upon purchase/acquisition was not to let it out, but you now wish to take a buy to let mortgage on it, it is classed as a consumer buy to let. Furthermore, where buy to let mortgages are not regulated in the same way your own home mortgage is, consumer buy to let mortgages are classed as regulated buy to let transactions. In practice, this means that there’s a bit more paperwork involved than a standard buy to let mortgage, and the mortgage will adhere to regulations set out by the Financial Conduct Authority (FCA).
Consumer Buy to Let Lenders
While consumer buy to let mortgages may sound like a niche market, the good news is there are 29 buy to let lenders who offer consumer buy to let mortgages to individuals and 15 for limited companies, so it’s not that difficult to secure one. While the underwriting will be slightly different, the process of applying for the mortgage and the criteria the borrower needs to meet will be the same as a standard, non-regulated buy to let.
If you are purchasing a new home, while turning your existing one into your first buy to let, lenders will want to see proof of the onward purchase and any related mortgage agreements. The other common scenario for consumer buy to let, that can affect affordability calculations, is if you move in to your partners existing home and therefore wish to let yours out. Most lenders will apply standard buy to let affordability calculations to this; however, some will require a tenancy agreement to be in place for six months to ensure the property is being let out.
The Difference Between Consumer Buy to Let and Let to Buy Mortgages
The key difference between consumer buy to let and let to buy transactions is to do with regulation. Consumer buy to let transactions are always regulated; however, some lenders do not insist that let to buy mortgages are in certain circumstances. For example, if you are an existing buy to let landlord, a lender may take the view that placing a buy to let mortgage on your current residence does not have to be a regulated transaction. This is because they consider your experience with property investment adequate not to require the additional protection regulated mortgages provide borrowers.
Let to buy is an industry term given where a borrower is looking to let out their existing home and move to a new property. Whilst most lenders prefer that you make an onward purchase, some are comfortable with that not being the case. i.e. you are moving in with a partner and not purchasing a new property.
Usually, the let to buy lender will require that the borrower has owned and lived in the property (mortgaged or unencumbered) for a minimum of six months as, like a consumer buy to let, the original intention for the property was not for it to be a private rental. If you are making an onward purchase, you will likely need to provide proof and, if applicable, the residential mortgage agreement for that purchase. If the lender does treat let to buy mortgages as regulated, you can expect some additional paperwork!
Like consumer buy to let mortgages, let to buy mortgages are widely available! There are currently 31 buy to let lenders who offer let to buy mortgages to individuals and 18 to limited companies. This means there’s plenty of competition in the market and lots of options to choose from.
For more information about let to buy mortgages, read our detailed blog on it here.
Hopefully, this helps explain the main differences between consumer buy to let and let to buy, but I appreciate it’s a highly complex area of buy to let investment! If you have any further questions or think your circumstances may mean you fall into either a consumer buy to let or let to buy criteria, get in touch today! You can call me, Erin Gallacher, on 01625 416392 or email me firstname.lastname@example.org.
26th May 2021