Broadly speaking, renting out a property is an intentional venture. Properties are purchased with rental in mind, renovated to serve this purpose better, and the project is funded by a financial solution geared towards property rental. However, though perhaps less common, there are plenty of scenarios wherein a property owner accidentally enters the trade.
Property owners might inadvertently enter the rental industry in a variety of ways. One of the most common is through inheritance, with rental properties being passed down to someone who may not have become a landlord otherwise. Alternatively, an individual may find themselves unexpectedly having to rent a property to a family member, or they want to keep a property when moving in with a significant other. Whatever the case, preparing a property for rental is seldom cheap, and using the right method of finance is vital.
The most appropriate financial solution for most unexpected landlords is a consumer buy-to-let mortgage. In this article, we will discuss this type of finance, how it works, and how you can obtain one. Let’s get started.
What is a consumer buy-to-let mortgage?
Consumer buy-to-let mortgages are a somewhat new form of finance. It works similarly to the more well-known buy-to-let mortgage, allowing property owners to rent out their properties legally. Residential mortgages do not allow you to do so, as they are solely for the purchase of a dwelling for the buyer.
Although similar to the broader umbrella of buy-to-let mortgages, a consumer buy-to-let mortgage has a few differences. Most notably, it is a form of finance available only to landlords that have unexpectedly found themselves owning a property for rental. As we mentioned, this could be because of inheritance, or a sharp change in personal circumstances that make renting out a property the only option, such as renting out part or all of a property to a family member. In some cases, a consumer buy-to-let mortgage will be appropriate for people who intentionally get into the property rental industry, but are not professional landlords.
In addition to the above differences, consumer buy-to-let mortgages are regulated by the FCA, or Financial Conduct Authority. This authority is the same one that governs residential mortgages, affording accidental landlords the same protections that residential mortgage borrowers enjoy.
Also Read: What Is a Regulated Mortgage
Obtaining a consumer buy-to-let mortgage
Consumer buy-to-let mortgages are a fairly new and unique financial solution. As a result, obtaining one can be difficult, as the eligibility criteria and application process can be just as niche as the financial product itself. Before applying for a consumer buy-to-let mortgage, it is a good idea to apprise yourself of both the eligibility criteria and the application process.
Eligibility criteria for a consumer buy-to-let mortgage
Before you apply for a consumer buy-to-let mortgage, you should first check to see if you meet the eligibility criteria. Given the nature of this financial product, most of these criteria are fairly obvious, as it’s easy to know whether you have accidentally become a landlord, or you haven’t. If you intend to apply for a consumer buy-to-let mortgage, here are the criteria you must meet:
- You did not become the owner of the property in question with the intent to rent it out. This could be for a range of reasons, from inheritance, to changes in personal circumstances.
- You or a family member must have lived in the property for some time before you take ownership of the property.
- You must not have been a professional landlord prior to obtaining the property. This means that your livelihood must be earned from means other than property renting.
If you meet these three criteria, then you may be eligible for a consumer buy-to-let mortgage. Note that these are the three criteria that make a consumer buy-to-let mortgage distinct from other similar mortgages; there are other criteria that are shared by other loans that you must also meet. These additional criteria include having stable finances, a good credit history, the capability to pay a deposit, a lack of debt, and so on.
Also Read: Bridging Loan To Buy a House
Applying for a consumer buy-to-let mortgage
If you meet the eligibility criteria, including the additional criteria shared with other types of mortgages, then you can begin applying for a consumer buy-to-let mortgage. The process takes several steps, and partially depends on how you became the owner of the property in question.
Before applying for a consumer buy-to-let mortgage, you should first obtain a professional valuation of the property. This is to determine how much income you can expect to earn from renting your property. This revenue will determine exactly how large or small your consumer buy-to-let mortgage will be. Lenders for such loans place a significant amount of importance on such factors, often basing their decision on rental income. If you don’t know of a professional property valuer, you can contact your local estate agent for a valuation.
Also Read: Purchasing Property With a Bridging Mortgage
Next Steps
Once you have your property valued, the next step is dependent on how you obtained the property. If you inherited the property, it is best to contact the current provider of the property’s mortgage, if one exists. They can offer you important details regarding your property’s mortgage, allowing you to assess the financial situation of your inherited property. You might also be able to remortgage the property, changing from its current mortgage to a consumer buy-to-let mortgage. If they are willing to let you make the change, you can make your application.
At this point, all that’s left is to make the application itself. It’s a good idea to shop around for a consumer buy-to-let mortgage in order to get the best deal, comparing what different lenders have to offer. Moreover, obtaining professional financial advice is a good idea, especially if they are an expert on consumer buy-to-let mortgages. They can point you in the right direction, showing you what to look for in a consumer buy-to-let mortgage, which lenders offer a good deal, and which you should stay away from. Once you’ve settled on your lender, simply contact them and submit an application. If approved, you will have your consumer buy-to-let mortgage in short order.
Wrapping up
A consumer buy-to-let mortgage is a niche but useful form of finance. It allows individuals that unexpectedly become landlords to financially support their endeavours, even if their property is currently mortgaged through other means. However, although useful, consumer buy-to-let mortgages are difficult to obtain, having a more stringent application process and eligibility criteria than other loans. Furthermore, they typically have higher interest rates than other mortgages, though the difference isn’t so steep if you are deemed to be low-risk. As such, it’s important to shop around for the best deal when searching for a consumer buy-to-let mortgage.