December 11, 2023

What Is A Regulated Buy To Let Mortgage?

A regulated mortgage to buy to rent a property to a family member is called a regulated buy-to-let mortgage. Because conventional buy-to-let mortgages aren’t regulated, the reason why regulated is being used is that they don’t exist.

A buy-to-let mortgage that is regulated falls under stricter guidelines than a regular buy-to-let. The FCA regulates buy-to-let mortgages that are regulated. The application process for regulated buy to let mortgages will be more stringent than traditional buy-to-let mortgages.

Examples of regulated buy-to-let include:

  • A landlord rents a property to a sibling
  • Parents rent a property to their child
  • Parents are renting a house from a landlord
  • Grandparents renting to their daughters/sons

What Deposit Is Required For A Regulated Buy-To-Let?

Lenders will typically require a minimum of 25% deposit, and only allow 75% LTV. Lenders will be restricted by the regulations.

Higher deposits often result in the best mortgage deals. Lenders have greater security and can lower mortgage rates because of this. You may be eligible for headline rates if you have a minimum of a 40% deposit and a mortgage that is only 60%.

What Is The Maximum Amount I Can Borrow From A Regulated Buy-To-Let?

The most favorable rates for buy-to-let mortgages are not the ones that are regulated. This can hurt how much you can borrow.

Lenders that offer mortgages in a market already limited may not be willing to do so on their terms. These terms may be restrictive, but you might still be able to get a great deal. We have secured some amazing regulated buy-to-let deals for our clients in the past, despite each borrower having different circumstances.

Regulated mortgages for buy-to-let are treated differently than conventional mortgages. Conventional buy-to-let is usually based on the rental income for the property and not the applicant. Regulated buy-to-let is heavily based on income and affordability. Lenders want to ensure that the borrower can repay the mortgage even if the property doesn’t generate rental income.

What Happens If A Family Member Leaves?

If you own a regulated buy-to-let and your family member moves out, you may be eligible to switch to a regular buy-to-lease mortgage. While you are a mortgage holder, it is important to be open with your advisor and lender about any property changes. There are many benefits to switching from a regulated to a standard buy-to-let.

When compared to regulated buy-to-let, traditional buy to rent may be more affordable:

  • Higher mortgage rates
  • A decrease in the deposit can lead to an increased equity
  • Greater flexibility
  • There are many lenders to choose from
  • Cash flow increases

What Happens If A Part Of My Property Is Rented To A Relative?

A standard buy-to-let mortgage might be enough if your property is not being rented out to family members. Lenders will determine whether you require a regulated buy-to-let mortgage. This calculation is based upon a percentage of the property that is occupied by your family.

A large number of lenders adhere to guidelines that suggest that any occupancy exceeding 40% would require a mortgage that is regulated. A traditional buy-to-let mortgage should be approved for occupancy below 40%.

A standard buy-to-let mortgage is available if your family member occupies only one room on the property. An HMO mortgage may be available to you.