Regulated and Non Regulated Buy to Let
There are two different classifications for Buy to Let mortgages:
Consumer Buy to Let (CBTL)
Some BTL mortgages are known as CBTL. This gives the FCA powers to supervise firms carrying out CBTL activity. Firms need to obtain the appropriate CBTL permissions. CBTL will apply when:
- The borrower or related person (an immediate relative) has ever lived in the property, or intends to live in the property in the future.
- The mortgage contract is not entered into wholly or predominately for the purposes of a business carried on, or intended to be carried on, by the borrower
- Primarily lenders should treat Let to Buys (LTB) as CBTLs, and this may apply to some inherited properties.
Investment Property Loans (IPL) or Business Buy to Let (BBTL)
Some BTL mortgages can be non-regulated and are known as IPL or BBTL.
- These apply when a customer is deemed to be, or has identified themselves, as acting by way of a business in taking out a BTL mortgage and fits the following definition:
- The BTL loan is on a property that has been bought for business purposes for the sole purpose of letting it out.
- The borrower or related person has never lived in it, nor intends to live in it.
The lender will require a signed declaration from the borrower to confirm they’re acting wholly for business purposes. Similarly, anyone associated with the transaction must have no reason to think this is incorrect.
Whilst IPL/BBTL loans are not regulated by the FCA, lenders will treat them the same as CBTL and expect you to apply the same scrutiny prior to submitting applications to them.
Types of landlords
- Amateur Landlord
- Experienced Landlord
- Portfolio Landlord – four mortgaged BTL properties or more.
- Limited Companies or Special Purpose Vehicle limited companies: When a property is owned and let by a business.
You can see each individual lenders criteria on our BTL matrix here.
Houses in multiple occupancy (HMO)
A property is a HMO if both of the following apply:
- At least 3 tenants live there, forming more than 1 household
- The tenants share a toilet, bathroom or kitchen facilities with other tenants
A large HMO if all of the following apply:
- It’s at least 3 storeys high
- At least 5 tenants live there, forming more than 1 household
- They share a toilet, bathroom or kitchen facilities with other tenants
All large HMOs need a license from the local council. Some small HMOs may need a license as well, depending on the council.
A household is either a single person or members of the same family who live together.
A family includes people who are: married or living together - including people in same-sex relationships
relatives or half-relatives, eg grandparents, aunts, uncles, siblings step-parents and step-children
When assessing affordability, future interest rate increases should be taken into consideration over a minimum period of five years, unless the rate is fixed for five years or more at the start of the contract or the repayment period is less than five years. Lenders may stress test affordability based on an Income Coverage Ratio and/or an assessment of personal income. Lenders Income Coverage Ratio (ICR):
- The minimum ICR industry standard is 125%.
- A minimum borrower interest rate of 5.5% must be used during the first five years of the BTL mortgage.
- Portfolio Landlords are subject to a specialist underwriting approach based on the lender's knowledge of the borrower. This can include their portfolio, experience, assets and liabilities, cashflow and alternative sources of income.
You can see the different lenders ICR rates are on our BTL matrix
If your customer has accepted a position abroad and has decided to rent out their existing property, or they’re looking to buy before they return home, this is classed as an Ex-Pat mortgage.
For further information on the lenders that offer Ex-Pat mortgages, contact our helpful Mortgage Support Services Team
01226 230504 (lines are open between 9am and 5.30pm, local call charges may apply).
Many changes have happened and are due to happen in the BTL Market, so we have created a new handy page where you will find information on regulatory change from the PRA (Prudential Regulation Authority) and the FCA (Financial Conduct Authority).
It includes information on:
- Underwriting Process for Portfolio Landlords
- The changes to Tax relief for Buy to Let Landlords
- BTL underwriting standards
- Stamp Duty changes
Lenders have also been busy implementing changes and all the details have been updated on our Buy to Let Matrix, which can be found here.