Are Buy To Let Mortgages Regulated In The UK? Are Investors Still Protected?

No, Buy-to-let mortgages are not regulated. But If you want to sell a property to a family member, you may need a regulated buy-to-let mortgage. While renting to relatives isn’t uncommon, most lenders avoid these arrangements due to significant risks.

Let’s take a detailed look at it.

What is a Regulated Buy-to-let Mortgage?

A regulated buy-to-let mortgage allows you to rent a property to immediate family members like parents, children, grandparents or siblings. These mortgages must follow stricter guidelines from the Financial Conduct Authority (FCA) compared to standard buy-to-lets. This means the application process can be more rigorous.

Many lenders refrain from offering regulated buy-to-let mortgages due to the extra risks and tight rules involved. But it is possible to get one if you find the right lender.

Are Any Types of Buy-to-let Mortgages Regulated?

Types of regulated buy-to-let mortgages

While most buy-to-let mortgages are unregulated, some exceptions do fall under regulation. One is ‘consumer buy-to-let’ mortgages. These aim to protect ‘accidental landlords’—such as someone inheriting a property to rent out or letting it to an immediate family member.

Some lenders avoid these scenarios, seeing them as too restrictive. However, consumer buy-to-let applications are covered by Financial Conduct Authority rules. They get similar consumer protections as standard residential mortgages.

So, while most buy-to-lets are unregulated, certain ones, like for inherited properties or renting to relatives, are regulated. An adviser can explain if your particular situation requires a regulated mortgage.

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Key Criteria for Regulated Buy-to-let Mortgages

Here are the critical criteria for regulated buy-to-let mortgages in my own words:

  • General requirements like loan-to-value, deposit, and expected rental income are similar to unregulated deals. Your finances will also be assessed.
  • If you or close relatives end up living in the property, inform your lender – you may need to switch to a regulated mortgage.
  • Stating you intend to live there yourself also makes it a regulated residential deal.
  • The main trigger is letting to close family—parents, grandparents, children, siblings. Not extended family.
  • Letting to these relatives means stricter lending criteria as lenders view it as a higher risk.
  • An experienced broker can advise if your situation requires a regulated deal and help you find appropriate lenders.
  • The key factor is whether close family members will live in the property, making it a riskier regulated mortgage.

What Happens if My Family Member Moves Out?

If the family member renting your regulated buy-to-let decides to move on, you can switch to a standard buy-to-let mortgage. It’s best to be upfront with your lender and adviser about any changes to the property.

Switching from a regulated to an unregulated buy-to-let could have advantages like:

  • Better interest rates.
  • Lower deposit needs, increasing your equity.
  • More flexibility.
  • Wider choice of lenders.
  • Improved cash flow.

Getting a Regulated Buy-to-let Mortgage With Bad Credit

Getting a regulated buy-to-let mortgage with bad credit

Having adverse-credit can make getting any mortgage more challenging. With regulated buy-to-let deals already having tighter criteria, poor credit history makes it even more difficult – but not impossible.

Mainstream lenders often automatically only accept applicants with good credit. So, you should look at specialist lenders who take a broader view.

Specialists consider your overall situation, current finances, recent credit history and affordability. They don’t just look at credit scores or past issues.

With regulated BTL and bad credit, knowing your options is difficult. Specialist lenders in this area don’t advertise products publicly. They prefer to work through brokers.

This ensures applicants suit their niche services. An experienced broker will understand these lenders’ criteria and match you accordingly. So, while challenging, with expert help, regulated BTL mortgages are feasible even with adverse credit.

How Much Deposit is Required for a Regulated Buy-to-let?

Regulated buy-to-let mortgages usually require a higher deposit than standard buy-to-lets or residential mortgages, as lenders consider them riskier. Most lenders will ask for around a 25% deposit when taking out a regulated BTL mortgage. This may be even higher if you have any adverse credit history.

As mortgage brokers, we can sometimes negotiate better deals on your behalf, like lower interest rates. Putting down a larger deposit may also open up preferential options.

So, while regulated BTL deals typically need an immense deposit contribution from you compared to other mortgages, an expert broker can guide you on maximising your chances of the best deal for your circumstances.

Final Words

Obtaining a regulated buy-to-let mortgage can seem complex, with stricter lending criteria than standard BTLs. However, with the right advice, it is achievable. Our expert brokers understand these niche mortgages and can match you with appropriate lenders.

While regulated deals require extra diligence from applicants, for many, they present the best option to house close family affordably. We’re here to demystify the process and negotiate on your behalf.

If you need a regulated BTL to rent to parents, children, or siblings, get in touch. We’ll clarify if it fits your situation, outline the regulations, and support your application every step of the way. With bespoke guidance, regulated mortgages are within reach.

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