Getting consumer buy-to-let (CBTL) mortgages

Understanding the different types of mortgages available is crucial when you’re stepping into the property market. Among the options you might encounter are Consumer Buy-to-Let (CBTL) mortgages. These specialised mortgage products are designed for individuals who find themselves as ‘accidental landlords.’ Unlike conventional buy-to-let mortgages, which are geared towards investors looking to profit from renting out the property, CBTL mortgages are meant for those who unintentionally end up letting out a property they own, perhaps through an inheritance or a change in personal circumstances. With its unique regulatory framework and lending criteria, a CBTL mortgage can offer a practical and compliant solution for those navigating the unanticipated path of property letting.

What is the definition of a consumer buy-to-let mortgage?

A consumer buy-to-let mortgage, sometimes called a “CBTL”, is a specific type of mortgage in the United Kingdom designed for individuals who unintentionally become landlords.

For example, this could apply to a person who inherits a property and decides to rent it out or someone who moves in with a partner and opts to rent out their own property instead of selling it. In these cases, they did not buy the property with the intention of letting it out (which would typically require a standard buy-to-let mortgage); they became landlords due to circumstances.

Unlike traditional buy-to-let mortgages, which are considered a form of business loan, consumer buy-to-let mortgages are regulated by the Financial Conduct Authority (FCA). This means that lenders must follow stricter lending criteria and provide borrowers with more protections similar to those offered with residential mortgages.

It’s important to note that not all lenders offer consumer buy-to-let mortgages, and the terms and conditions can vary widely between those who do.

How does a consumer buy-to-let mortgage work?

A consumer buy-to-let (CBTL) mortgage works in a somewhat similar way to a standard buy-to-let mortgage, with a few key differences relating to the circumstances of the borrower and the regulatory requirements.

Here are the main steps involved in the process:

Application: First, an individual who unintentionally became a landlord, such as through inheriting a property or moving in with a partner and renting out their own house, applies for a CBTL mortgage. Not all lenders offer CBTL mortgages, so the individual would need to find a suitable lender.

Qualifying: The lender will assess the individual’s personal income and credit history, as well as the potential rental income from the property. This is because, unlike a standard buy-to-let mortgage, a CBTL mortgage is regulated in a similar way to a residential mortgage.

Approval: If the applicant meets the lender’s criteria and passes the affordability assessments, the lender will approve the CBTL mortgage.

Mortgage Terms: The terms of a CBTL mortgage can vary, but typically, the borrower will repay the mortgage over a fixed period, such as 25 years, in monthly instalments. The interest rate could be fixed or variable, depending on the specific mortgage product.

Property Rental: The borrower can then rent out the property. The rental income can help to cover mortgage repayments, maintenance costs, and other expenses.

Repayment: Over time, the borrower repays the mortgage. If the borrower fails to meet the repayments, the lender can repossess the property.

One of the most important things to remember is that a CBTL mortgage is a regulated product, and as such, lenders must meet certain requirements for transparency and fair treatment of borrowers. This can provide the borrower with greater protection compared to a standard buy-to-let mortgage.

Application process

Applying for a Consumer Buy-to-Let (CBTL) mortgage involves several steps, which are similar in many ways to applying for a standard residential mortgage. However, keep in mind that not all lenders offer CBTL mortgages, and each lender may have slightly different requirements and processes. Here is a general outline of the process:

Research: Start by researching lenders that offer CBTL mortgages. Compare the terms and interest rates of various lenders to find the best deal for your circumstances.

Preparation: Gather all the necessary documents. These usually include proof of identity, proof of address, evidence of income (such as pay slips or tax returns), bank statements, and details about the property you plan to let. You may also need to provide an estimate of the rental income you expect to receive from the property.

Application: Submit your application to the lender. This can often be done online, although some lenders may also offer the option to apply in person or over the phone. In the application, you’ll provide personal information, financial information, and details about the property.

Affordability Assessment: The lender will conduct an affordability assessment. This usually involves checking your credit history and evaluating your income, expenditures, and the potential rental income from the property. The aim is to ensure you can afford the mortgage repayments, even if interest rates rise or you experience periods without rental income.

Property Valuation: The lender will arrange for the property to be valued. This helps the lender determine how much they are willing to lend based on the property’s market value and the expected rental income.

Approval: If the lender is satisfied with the results of the affordability assessment and property valuation, they will approve your application and offer you a mortgage. The offer will detail the terms of the mortgage, including the interest rate, the repayment schedule, and any fees or charges.

Legal Process: Once you accept the offer, legal processes will begin to transfer the property to your name (if you’ve just inherited it, for example) or to put the CBTL mortgage in place.

Lending criteria

The lending criteria for a Consumer Buy-to-Let (CBTL) mortgage can vary between lenders, but there are some common factors that most lenders will consider:

Eligibility: As mentioned earlier, to qualify for a CBTL mortgage, you must be an “accidental landlord”. This typically means you didn’t buy the property with the intention of renting it out, but circumstances have led you to become a landlord (e.g., you inherited a property or moved in with a partner and decided to rent out your property).

Affordability Assessment: Lenders will conduct an affordability assessment to ensure that you can afford the mortgage repayments. They will consider your income, expenditures, and the potential rental income from the property.

Credit History: Your credit history will be reviewed to assess your reliability as a borrower. If you have a poor credit history, it might be more difficult to secure a CBTL mortgage.

Income: While the expected rental income from the property is an important factor, lenders will also consider your personal income to ensure you can meet the mortgage repayments, particularly during periods when the property may not be rented out.

Age: Some lenders have upper age limits for when the mortgage term must end, so your age could be a factor.

Property Value and Rental Income: The lender will arrange for the property to be valued. The amount they’re willing to lend will depend on the property’s market value and the expected rental income. The rental income will typically need to be 125% to 145% of the mortgage payments, depending on the lender and mortgage product.

Deposit: As with other types of mortgages, you’ll generally need to provide a deposit. The exact amount will depend on the lender, but it’s typically at least 25% of the property’s value.

Which lenders offer these mortgages?

Several lenders offer Consumer Buy-to-Let (CBTL) mortgages in the UK. However, the market can change, and lenders’ offerings can vary, so it’s always a good idea to do some up-to-date research or consult with a mortgage broker. Here are some lenders that have been known to offer CBTL mortgages:

Paragon Bank: Known for its range of buy-to-let mortgage options, Paragon has also offered CBTL mortgages.

Foundation Home Loans: This lender offers a range of buy-to-let mortgage products, including those suitable for consumer landlords.

Precise Mortgages: Precise Mortgages has been known to offer a range of buy-to-let options, including CBTL.

The Mortgage Works (TMW): As the buy-to-let division of Nationwide Building Society, TMW has also catered to consumer landlords.

Mortgage Trust: This is another lender that has previously offered a range of buy-to-let products, including those suitable for accidental landlords.

Landbay: Landbay has offered a range of buy-to-let products and previously included CBTL mortgages.

How much can you borrow?

The amount you can borrow with a Consumer Buy-to-Let (CBTL) mortgage depends on various factors, including:

Property Value: The value of the property you’re planning to let out will play a significant role in determining how much you can borrow.

Rental Income: Lenders will consider the expected rental income from the property. Generally, the rental income must be 125% to 145% of the mortgage payments, depending on the lender and the specific mortgage product.

Deposit: The size of your deposit will also affect how much you can borrow. For most CBTL mortgages, you’ll need at least a 25% deposit, although this can vary. The larger your deposit, the less you’ll need to borrow.

Affordability Assessment: Lenders will conduct an affordability assessment that considers your income and outgoings to ensure you can afford the mortgage repayments, particularly when the property is not rented out.

Loan-to-Value (LTV) Ratio: This is the loan amount ratio to the property’s value. Most CBTL lenders offer maximum LTV ratios of 60% to 75%, but this can vary.

What is the difference between a CBTL mortgage and a standard buy-to-let?

The key differences between a consumer buy-to-let (CBTL) mortgage and a standard buy-to-let mortgage in the UK relate to their intended purposes and the level of regulatory protection afforded to borrowers. Here are the main distinctions:

Intended Purpose: A standard buy-to-let mortgage is designed for individuals who are purchasing a property specifically to rent it out and generate income. These are typically seen as business transactions. In contrast, a CBTL mortgage is intended for individuals who have become landlords unintentionally. This could happen if they’ve inherited a property or if they’ve had to move out of their home for some reason (like moving in with a partner) and decided to rent out their property instead of selling it.

Regulation: Standard buy-to-let mortgages are typically not regulated by the Financial Conduct Authority (FCA), as they’re considered a type of business loan. This means that borrowers don’t have the same level of consumer protection as with a residential mortgage. On the other hand, CBTL mortgages are regulated by the FCA, which means that lenders must adhere to stricter lending criteria and provide greater protections to borrowers.

Lending Criteria: Given that CBTL mortgages are regulated, the affordability checks for these types of mortgages tend to be more rigorous, often taking into account the borrower’s personal income alongside the potential rental income. Standard buy-to-let mortgages, however, are primarily assessed on the potential rental income from the property, though personal income may still be a factor.

Availability: Not all lenders offer CBTL mortgages, so the range of products available may be more limited compared to standard buy-to-let mortgages.

What are the benefits of a consumer buy-to-let mortgage?

Consumer Buy-to-Let (CBTL) mortgages come with several benefits, especially for accidental landlords who did not originally plan to rent out their property. Some of the main benefits include:

Regulation: CBTL mortgages are regulated by the Financial Conduct Authority (FCA). This means that lenders must meet certain standards of transparency and fair treatment of borrowers, offering you additional protections compared to a standard buy-to-let mortgage.

Affordability Checks: Since CBTL mortgages are regulated similarly to residential mortgages, the lender will consider your personal income alongside the potential rental income from the property during the affordability assessment. This may make it easier for some borrowers to qualify for a mortgage.

Flexibility: If you’ve inherited a property or if you’re moving in with a partner and want to keep your original property by renting it out, a CBTL mortgage allows you to do this while complying with mortgage regulations.

Income Potential: A CBTL mortgage allows you to generate rental income from your property. This can help cover the mortgage repayments and potentially provide an additional income stream.

Potential for Property Value Appreciation: If property prices rise, you may benefit from increased property value, which could be advantageous if you decide to sell the property in the future.

Lower Interest Rates: While not always the case, CBTL mortgages can sometimes offer lower interest rates compared to standard buy-to-let mortgages, thanks to the regulatory protections in place.

What are the potential drawbacks of a consumer buy-to-let mortgage?

While Consumer Buy-to-Let (CBTL) mortgages offer several benefits, it’s also important to be aware of potential drawbacks and risks:

Limited Availability: Not all lenders offer CBTL mortgages, so the range of products available can be more limited compared to standard buy-to-let mortgages. This might make it harder to find a mortgage that suits your needs.

Costs and Fees: While CBTL mortgages can sometimes offer lower interest rates compared to standard buy-to-let mortgages, you may still face higher interest rates than residential mortgages. Plus, there can be additional fees, like valuation fees, legal fees, and potentially higher broker fees.

Regulatory Compliance: As a landlord, even an accidental one, you’ll have legal responsibilities to your tenants. This includes maintaining the property to a certain standard, meeting safety regulations, and properly handling tenancy agreements and deposits. These responsibilities can be time-consuming and potentially costly.

Rental Income Uncertainty: While rental income can help cover mortgage repayments, it’s not always guaranteed. There could be periods when the property is vacant, or you may have issues with tenants not paying rent on time.

Property Maintenance: As the property owner, you’ll be responsible for ongoing maintenance and repairs, which can add to the cost of holding the property.

Property Value Risk: If property prices fall, you could end up in a situation where you owe more on the mortgage than the property is worth, known as negative equity.

Interest Rate Risk: If you have a variable-rate mortgage, your repayments could increase if interest rates rise. Even with a fixed-rate mortgage, your repayments could increase after the fixed-rate period ends.

How does a consumer buy-to-let (CBTL) differ from a regulated buy-to-let?

A Consumer Buy-to-Let (CBTL) mortgage and a Regulated Buy-to-Let (RBLT) mortgage are actually very similar in terms of regulatory oversight, as both are regulated by the Financial Conduct Authority (FCA). The key distinction between these two types of mortgages lies in the borrower’s circumstances and intentions for the property. Here are the differences:

Consumer Buy-to-Let (CBTL): These mortgages are for people who become landlords unintentionally. This can happen in situations such as when a property is inherited or if a homeowner decides to rent out their property because they’re moving in with a partner. The homeowner didn’t initially buy the property with the intention to let it out, hence the term “consumer buy-to-let.”

Regulated Buy-to-Let (RBLT): These are for people who buy a property specifically to let out to a close family member (or will be living in the property alongside the tenant). This could include parents buying a property for their children while they attend university, for example. RBLTs are also regulated by the FCA because of the potential for conflicts of interest when dealing with family members and the potential for the landlord to live in the property at the same time as the tenant.

In terms of the mortgage application and affordability checks, both types of mortgages are handled similarly. Lenders have to follow FCA rules, ensuring that the loan is affordable for the borrower and that the borrower is treated fairly.

However, due to the nature of the borrower’s relationship with the tenants in an RBLT scenario, some lenders might apply stricter lending criteria or charge higher interest rates to offset the potential additional risk. The availability of RBLT mortgages might also be more limited as not all lenders offer them.

Can I get a consumer buy-to-let mortgage if I inherit a property?

Yes, if you inherit a property and decide to rent it out instead of living in it or selling it, you would likely be eligible for a Consumer Buy-to-Let (CBTL) mortgage. This is because CBTL mortgages are designed for people who become landlords unintentionally, such as through inheritance.

If there is an existing mortgage on the property you’ve inherited, you will need to either pay off that mortgage or refinance it. If you choose to refinance and you want to rent the property out, a CBTL mortgage would likely be the appropriate choice.

However, keep in mind that, like with any mortgage application, you would still need to meet the lender’s criteria. This could include things like passing an affordability check and credit check, the property meeting the lender’s requirements, and the expected rental income from the property being sufficient to cover the mortgage repayments.

Remortgaging a consumer buy-to-let property

Remortgaging a Consumer Buy-to-Let (CBTL) property is a process through which you replace your current mortgage with a new one, either with your current lender or with a new one. You might do this to take advantage of a better interest rate, to release equity from the property, or for other financial reasons.

Here’s a general process for remortgaging a CBTL property:

1. Assess Your Current Situation: Evaluate your existing mortgage terms, such as your current interest rate, remaining term, and whether there are any early repayment charges.
2. Research Your Options: Compare different mortgage deals available on the market to see if there are more favourable rates or terms. Keep in mind that not all lenders offer CBTL mortgages, so you’ll need to focus on those that do.
3. Get a Property Valuation: The value of your property may have changed since you took out your original mortgage, so a current valuation will be needed. This can affect the Loan-to-Value (LTV) ratio, which in turn can impact the rates available to you.
4. Apply for a New Mortgage: If you find a deal that suits your needs, you can apply through the lender or a mortgage broker. You’ll need to provide information about your income, the property, and the rental income it generates.
5. Property and Legal Checks: Your new lender will carry out checks on the property and may also require a solicitor to manage the legal side of the transaction.
6. Repay the Old Mortgage: Once the new mortgage is approved, the funds are used to repay the original mortgage. If there’s any excess (because you’re releasing equity), this is typically paid to you.

Will you need landlord insurance on a consumer buy-to-let mortgage?

Yes, if you have a Consumer Buy-to-Let (CBTL) mortgage and you’re renting out the property, it’s highly recommended that you have landlord insurance. While it’s not a legal requirement, it’s often a condition set by the lender in the mortgage agreement.

Landlord insurance is a type of cover that typically includes buildings insurance to protect against damage to the structure of the property, as well as other features like landlord liability cover and loss of rent cover. Some policies also offer contents insurance if the property is rented furnished, and legal expense cover, for example, for eviction proceedings.

Standard home insurance usually doesn’t provide the level of cover necessary when you’re renting out a property, as it doesn’t account for the additional risks associated with having tenants. Therefore, having a specific landlord insurance policy can help protect your investment and provide peace of mind.

Remember, insurance policies can vary in what they cover and the terms they offer, so it’s important to read the policy documents carefully to ensure it meets your needs. You may also want to compare quotes from different providers to ensure you’re getting a competitive rate.

How much of a deposit do you need for a consumer buy-to-let mortgage?

Typically, for a Consumer Buy-to-Let (CBTL) mortgage in the UK, you will need a deposit of at least 20-25% of the property’s value, although this can vary depending on the lender and your personal circumstances. This means the Loan-to-Value (LTV) ratio — the proportion of the property’s value that is financed by the mortgage — is typically around 75-80%.

However, keep in mind that the larger your deposit, the lower your LTV will be, and the more likely you are to be offered a more competitive interest rate. This is because a lower LTV presents less risk to the lender.

The exact deposit required will also depend on other factors, such as your income, the expected rental income from the property, and your credit history. It’s always a good idea to consult with a mortgage broker or financial advisor to understand exactly what you’ll need for your situation.

Can anyone apply for a consumer buy-to-let mortgage, or are there specific qualifications necessary?

While Consumer Buy-to-Let (CBTL) mortgages are available to a broad range of people, there are specific criteria that typically need to be met for an application to be considered. These criteria are largely due to the fact that CBTL mortgages are intended for those who have become landlords unintentionally rather than those buying a property specifically to rent it out. Here are some common qualifications necessary for a CBTL mortgage:

Landlord Status: CBTL mortgages are typically for people who have become landlords by circumstance rather than by choice. This might include people who have inherited a property or homeowners who have had to move but decided to rent out their property rather than sell it.

Number of Properties: Some lenders may require that you don’t own any other buy-to-let properties to qualify for a CBTL mortgage.

Income and Affordability: As with any mortgage, lenders will assess whether you can afford the repayments. This assessment may include your personal income, the rental income from the property, and your other financial commitments.

Credit History: You’ll generally need a good credit history to qualify for a CBTL mortgage, although some lenders may be willing to consider applications from people with less-than-perfect credit.

Property Suitability: The property itself will also need to meet the lender’s criteria. For example, it might need to be in a good state of repair or be of a certain value.

Are there any limitations on the number of properties that one can finance with consumer buy-to-let mortgages?

Consumer Buy-to-Let (CBTL) mortgages are designed for individuals who have become landlords by circumstance, not by choice. As such, the expectation is that a borrower would typically only have one property that they rent out under a CBTL mortgage.

However, the specifics can vary depending on the lender’s policy. Some lenders might allow more than one CBTL mortgage if, for example, the borrower has inherited multiple properties. Other lenders may have stricter rules and only allow one CBTL mortgage at a time.

Furthermore, if you own multiple buy-to-let properties with the intention of generating profit from letting them out, you would typically be considered a professional landlord and would therefore be more suited to a standard buy-to-let mortgage rather than a CBTL mortgage.

Do I need a consumer buy-to-let mortgage specialist?

While it’s not mandatory to use a specialist when applying for a Consumer Buy-to-Let (CBTL) mortgage, it can be highly beneficial to do so. A mortgage specialist or a mortgage broker with experience in CBTL mortgages can provide valuable guidance and assistance throughout the process.

Most importantly, A specialist will have up-to-date knowledge of the CBTL mortgage market, including the lenders who offer these types of mortgages and the specific criteria they require.