Regulated Family Buy-to-Let Mortgages

A regulated mortgage is a specialist product that enables the borrower to rent over 40% or more of their property to a relative. This also means the borrower (you for instance) could also live in the property with other tenants.

Just like a residential mortgage, this type of loan is also regulated by the Financial Conduct Authority (FCA). Unfortunately this kind of loan has stricter guidelines and there are less lenders offering regulated buy to let mortgages.

Lenders are aware that families may not charge the going rate for a rental property and renters may be let off with missed payments. This could cause issues with mortgage repayments, and loans perceived as more risky.

The differences between a regulated and unregulated buy-to-let mortgage

In short, when you apply for an unregulated buy-to-let mortgage you’re not planning to live in the property yourself or to rent it out to family whereas a regulated buy-to-let mortgage would allow for that to happen.

Potential scenarios for a family buy-to-let mortgage

It might make sense to get a buy-to-let mortgage for family if:

• If you’re a parent wanting to purchase property for your child to rent
• If your parents or grandparents move into a property you’re purchasing
• You want to live in the house yourself alongside a tenant.
• Your sibling will rent out your property with a partner or friend.

Eligible family members

The only way you can apply for this mortgage is if you have already chosen the family member and they have agreed to be included in this arrangement.

They could be:

• Child
• Sibling
• Parent
• Grandparent

Aunts, uncles and cousins won’t meet the criteria for this loan type.

There are many complexities that come with trying to get a regulated buy-to-let mortgage with family tenants in mind. An expert can help you navigate all of that.

We can help you with the following:

• To understand nuances of regulated and unregulated buy-to-let mortgages and can ensure you’re applying for the right one to suit your circumstances.
• To quickly find lenders back family buy-to-let mortgages, which means we know which lenders are more likely to approve your application.
• Draught your regulated buy-to-let mortgage application while also addressing any potential factors that a lender could perceive as risky.

If you get in touch we’ll arrange for our experiences buy-to-let broker with an extensive knowledge regulated mortgages to contact you straight away.

As with all other regulated mortgages, a lender will conduct a standard affordability assessment, this differs from anticipated rental income, the key factor for traditional buy-to-let mortgages.

Some of the other specific buy-to-let requirements lenders may request include:

• An individual applicant (instead of a joint applicant)
• A maximum LTV (loan-to-value) of 75%
• Age restrictions (usually between 25-75)
• Earnings (other than from rent) above £25,000 per annum to ensure affordability/

How much you can borrow

The amount you can borrow via a regulated buy-to-let mortgage will depend on your personal financial circumstances such as

• Gross annual income
• Outgoings
• Age (specifically for older borrowers)

In addition, whether you meet the lender’s criteria.

The main factor for a regulated by to let mortgage is your income rather than the rent the property will bring in. To get a rough idea of affordability, multiply your income 4.5 to 5 times.

Regulated buy to let mortgages are viewed as a niche product, and so there are less lenders offering family buy-to-let mortgages is a little smaller. Many of the high street banks – for example Metro Bank, Natwest, Bank of Ireland, HSBC, Santander and TSB – for example, don’t offer regulated buy-to-let mortgages.

Some of the current lenders include:

• Virgin Money
• Together
• Saffron for Intermediaries
• Bluestone Mortgages
• Vernon Building Society

In most cases, these lenders work directly with a broker, and not the general public.

While it wouldn’t be illegal for you or a family member to be living in a property with an unregulated buy-to-let mortgage and where you take up more than 40% of the property, there are significant risks.

Your lender can request the mortgage be repaid immediately, and if you couldn’t afford to do so, you’d have to consider alternative arrangements such as selling the property.

Can I get a regulated buy-to-let mortgage with bad credit?

Having bad credit doesn’t mean an automatic no to an application but it will depend on the type of issue, the size of debt involved and the date it was registered. Putting down a larger deposit can offset the particular bad credit issue but this is something you should talk to a broker about.

Can my child live in my buy-to-let property?

If your mortgage is an unregulated buy-to-let then it would be a breach of the terms and conditions to have anyone living in the property who wasn’t contributing to the mortgage repayments.

Do my family members need to sign a formal tenancy agreement?

While there’s no law that says you must have a tenancy agreement in place, it does protect both parties and is highly recommended. The tenancy agreement should include how much rent is payable, when it’s due, length of the tenancy term and what the property can be used for. If you don’t have a tenancy agreement and your tenant stops paying rent, it will be much harder to evict them.