From March 2016, new legislation came into force, under the Mortgage Credit Directive meaning that for the first time buy-to-let mortgages are supervised. The key objective for the change in rules is to distinguish so-called “accidental” landlords from those that are running a professional buy-to-let portfolio. Which are you?
This does not constitute advice and advice should be sought in all instances before acting on it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
How it used to work
Up until recently, the buy-to-let market was unsupervised because most landlords were viewed as business borrowers and therefore it was considered unnecessary to go through the same reviews, and affordability tests, as those required when applying for residential mortgages.
If the rental income was sufficient to cover the basic mortgage repayment then this was usually enough to satisfy a buy-to-let application.
However, from 21 March 2016, there are officially two types of buy-to-let borrower; consumer and professional.
The new application process regarding buy-to-let mortgages means that a borrower can declare whether they are a professional or consumer landlord. Therefore, it is important that you know the difference, or work with a mortgage broker that can help you with the application.
Are you a consumer landlord?
Consumer landlords, are also sometimes referred to as “accidental” landlords as they didn’t set out with all intents and purposes to own investment property.
Sometimes it is possible that you may inherit a property, or move in with a partner and decide to rent out the house you once lived in.
These are common scenarios these days and The Treasury estimated that up to 11 percent of buy-to-let mortgages could be classified as “consumer” loans.
A consumer landlord will be required by a lender to meet affordability details, in a similar way to applying for a residential mortgage.
This is to ensure that the property owner could still afford the loan in the event the property became vacant and this stricter process covers the lender for the higher risk of lending.
Are you a professional landlord?
A professional landlord is best described as someone running a buy-to-let business.
It is likely to be your main job, although it could be that you just have a substantial portfolio of several properties alongside your dental or medical practice.
Consumer landlords may end up converting to professional landlords if they start to expand their portfolio.
There may be more mortgage products available to professional landlords, as they are generally lower risk and the application process is simpler.
Need a mortgage? Speak to Chris
If you are considering buying a home in the near future, Chris can help prepare your application and discuss your options:
Tel: 01403 780 770
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