Buy to Let
Whether you’re already active in this sector or would like to get started we've updated our Buy to Let ‘hub’ to help and support you. Covering the market and lenders to understanding landlords and tenants needs, our hub should have all the information you need to help your BTL customers.The Buy to Let market continues to change. To keep on top of the changes and how they affect you and your customer, we have updated this useful hub..
Buy to Let Matrix:
You can find lots of useful information on each lenders criteria in our Buy to Let matrix here.
Regulated & Non Regulated Buy to Let
The Mortgage Credit Directive Order 2015 introduced a national framework for Buy to Let (BTL) mortgages in the UK, which resulted in two new classifications for BTL loans:
Consumer Buy to Let
Some BTL mortgages became defined as ‘Consumer Buy to let’ (CBTL) mortgages, which gave the FCA powers to supervise firms carrying out CBTL activity. Firms wanting to undertake activity in this area would 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 became non-regulated and known as ‘Investment Property Loans’ (IPL) or ‘Business Buy to Let’ (BBTL).
This applies 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 will not be regulated by the FCA, lenders will treat them the same as consumer BTL and expect you to apply the same scrutiny prior to submitting applications to them.
Different types of landlords
- Amateur Landlord
- Experienced Landlord
- Portfolio Landlord – four mortgaged BTL properties or more. Please see our Regulatory page for more
(A restriction on regulatory burdens on portfolio landlords will be implemented by 30 September 2017, please see our Regulatory page for further information.)
- 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 occuptancy (HMO)
A property is a house in multiple occupancy (HMO) if both of the following apply:
- At least 3 tenants live there, forming more than 1 household
- They a 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 licence 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
Affordability testing & lenders income coverage ratio
All BTL Mortgage Lenders (that are regulated by the PRA) from 1 January 2017 have implement restrictions on lending criteria.
These changes include stricter affordability tests including Interest Cover Ratio including the impact of recent Tax Changes and a stress test on interest rate rises.
The regulatory changes came into effect for new Purchases or Capital Raising – remortgage BTL properties remain unaffected.
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, and the borrower’s refinancing risk at the end of the fixed/capped rate period.
Lenders Income Coverage Ratio:
The minimum ICR industry standard remains at 125%.
A minimum borrower interest rate of 5.5% must be used during the first five years of the BTL mortgage.
Portfolio Landlords (those with 4 or more mortgaged BTL properties) and are subject to a specialist underwriting approach based on the lender's knowledge of the borrower. This can include the customers portfolio, experience, assets and liabilities, cashflow and alternative sources of income.
You can see the different lenders ICR rates are on our BTL matrix here.
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.
Expat mortgages fall into two categories; People who are about to move abroad and wish to retain their property here – usually to rent out, and people who are currently living abroad and are planning to return home at some point in the future.
For further information on the lenders that offer Ex-Pat mortgages, contact our helpful Mortgage Support Services Team on - 01226 230 504.
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:
- New Underwriting Process for Portfolio Landlords
- The changes to Tax relief for Buy to Let Landlords
- The new BTL underwriting standards
- Stamp Duty changes
You can find our Regulatory page here.
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.