Over the last few years the increasing buoyant rental market has seen a number of changes. Some have been given the accolade of giving the consumer additional protection, others less guarded about their intentions and with the recent change in Stamp Duty and the spectre of tax relief changes in 2017 it’s a wonder that landlords can be bothered.
In the same manner lenders and mortgage intermediaries have had to cope with a litany of regulatory changes and as is often the case the need to interpret some fairly vague rules. And it’s all in the interpretation, but woe betide you should get it wrong. The net result, certainly for a time, less products and less choice for all concerned, but more uncertainty and more confusion all round.
This is as all in the name of consumer protection and the need to ensure that the beleaguered landlords of our nation are fully aware of the position they are putting themselves in…. especially, god forbid, should they be new to the rental market.
So what are the classifications of Buy To Let customer?
Well in short there are now three main types of buy to let customer and actually when you understand these it’s not really all that bewildering.
The three categories are; unregulated, regulated and consumer. The first two have been with us for some time and whilst some lenders chose only to operate in the unregulated world the definition is reasonably clear for those wanting to provide a service and products for regulated buy to let customers. I will explain the difference in due course.
The last of the three is still pretty recent, only coming in as part of the Mortgage Credit Directive, applied to us on 21st March 2016. Although interpretation of this new category has caused some confusion and initially an absence of products, lenders do seem to be getting to grips and lots of products are now available. Indeed both Trigold and Mortgage Brain offer a filter to source this type of mortgage, and it appears that more and more lenders are entering this market as each week passes.
The three categories of Buy to Lets are as follows:
Unregulated Buy To Let – also known as Investment Property Loans, these are essentially business as usual. They are available to landlords who are entering into the buy to let market for commercial gain. Whilst this would normally apply to so called “professional landlords” it is worth nothing that even if you are a first time buy to let purchaser, as long as you are not renting to a family member and have entered into the contract for the purposed of long term income and asset growth generation. As the name suggests these mortgages are not regulated by the Financial Conduct Authority. Following Mortgage Credit Directive unregulated buy to let applicants need to be made aware of the lower level of protection available to them.
Regulated Buy To Let – There is a fairly narrow definition for this type of buy to let, essentially this is a property let to a family member or where up to 40% of the property is occupied by the owner with the remainder let. An example of a regulated buy to let would be Mum and Dad purchasing a property for their student child to live in while away at university. This type of buy to let is regulated by the Financial Conduct Authority in the same manner as a normal residential mortgage contract. Some lenders opted not to offer this type of mortgage as it can require a manual underwriting approach however some who do, such as Furness Building Society, specifically badge it as a “Family Buy to Let” to avoid potential confusion with mortgage intermediaries.
Consumer Buy To Let – as already mentioned earlier, this is a new category of Buy To let customer implemented from 21st March under the new Mortgage Credit Directive rules. Essentially the European directive identified a group of customers as having little or no experience in the rental market. Also known as “accidental landlords” the rules require these customers to have more protection and additional advice at the outset of the application process. This to ensure that they are fully aware of the implications of a buy to let mortgage, such as covering rental voids. Consumer Buy To Let’s or accidental landlords cover customers moving house and wishing to re-mortgage their existing property onto a buy to let mortgage, otherwise known as let to buy, additionally customers who have inherited a property and want to let it will be classed as an accidental landlord. Another point to note on Consumer Buy To Let’s is that they are not regulated by the Financial Conduct Authority, instead they are regulated by HM Treasury.
It should be mentioned that in either regulated or consumer buy to let cases if the applicant has another let property in the background they will be considered experienced in the area and therefore classed as an unregulated buy to let customer.
Some lenders are using a decision tree to identify which type of Buy To Let is applicable on cases. This essentially acts as a flow chart with yes and no answers ultimately leading to an outcome.
Whilst the information above covers the three main categories, it is worth noting that there are of course niches within this market. One of the more obvious areas is Holiday Lets, as the title suggests this are for owners of holiday properties who like to stay in the property themselves or who let out to holidaymakers when it is not in use.
I hope you have found this information useful and will clarify some of the more confusing aspects of buy to lets in 2016. It will be interesting what further changes appear in this dynamic market in the years to come!
Sue Heron - Marketing and Sales Director, Furness Building Society
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