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Buy-to-let

Consumer buy-to-let vs investment buy-to-let: which applies to you?

Not every landlord set out to be one. Someone who lets their old flat after moving in with a partner, or who inherits a house and rents it out, is in a different position from someone buying property to build an income. UK mortgage rules recognise that difference, and it affects which lenders and products are in play. This note is general information from Property Money Limited — not advice and not a personal recommendation.

The problem

People often arrive at buy-to-let sideways. A couple move in together and keep one flat to let. Someone relocates for work and does not want to sell. A parent dies and the family home is rented out while siblings decide what to do. In each case the owner wants a buy-to-let mortgage, or permission to let, but does not think of themselves as running a property business.

Others are deliberately investing: buying a property to let, adding to a small portfolio, or using a limited company. Lenders and the rules treat these groups differently, and getting the label wrong can mean wasted applications or the wrong product.

What “consumer buy-to-let” means

Consumer buy-to-let is a category introduced in 2016 for borrowers who are not letting “wholly or predominantly for business purposes”. The classic examples are accidental landlords — people who did not buy the property in order to let it, such as an inherited home or a former residence they could not sell. Lenders offering consumer buy-to-let have to follow extra conduct rules, so not every buy-to-let lender offers it.

Investment (or business) buy-to-let covers people who buy or hold property to let as a business: a deliberate purchase for rental income, existing landlords with other let properties, and most limited-company borrowing. These mortgages are generally not regulated in the same way, though lenders still apply their own underwriting.

Letting to close family is a separate case again. Where a borrower or close relative will live in the property, the mortgage may fall under residential regulated rules rather than ordinary buy-to-let. Some lenders have specific products for this.

What lenders typically look at

• Why you are letting. Lenders ask how you came to own the property and why you are renting it out. Your answer helps decide whether the case is consumer or business, and which products are open to you.
• Rental cover. Most buy-to-let lending is assessed on whether the expected rent covers the mortgage interest by a set margin at a stressed interest rate. The margin and stress rate vary by lender, by product and sometimes by your tax position.
• Personal income. Some lenders want a minimum personal income alongside the rent; others will lean more on the rent alone. Where the rent falls short, some lenders may “top up” with personal income — policies differ.
• Experience. First-time landlords, and especially first-time buyers wanting to buy a let property, are outside some lenders’ policies.
• Your other mortgages. If you will have several mortgaged buy-to-let properties, you may be treated as a portfolio landlord, which brings extra checks. See portfolio landlord and HMO mortgages.
• The property and tenancy. Standard single lets on assured shorthold tenancies are the mainstream case. Houses in multiple occupation, holiday lets and unusual tenancies sit in narrower markets.

Paths that often help

• Ask about consent to let first. If you already have a residential mortgage and want to let temporarily, your current lender may agree “consent to let” for a period, sometimes with a fee or a higher rate. It is not automatic, and letting without permission can breach your mortgage terms.
• Remortgage to buy-to-let. If the letting is longer term, moving to a buy-to-let mortgage may be the cleaner route — consumer or business depending on your circumstances.
• Get a realistic rent figure. Lenders usually rely on the valuer’s view of market rent rather than your hoped-for figure. Checking local lettings evidence first avoids surprises.
• Think about the next property too. If you are letting the old home to buy a new one, the new purchase is assessed with the let property counted. Both applications need to work together.

Not sure which kind of landlord you are? Send us the facts — a few lines is enough.

Mortgagability in plain terms

Mortgagability here means: given why you are letting, which lenders can consider the case, and does the expected rent pass their test at the loan size you want? Two people letting identical flats can face different products because of how they came to own them.

Common mix-ups

“I’ll just let it and tell the lender later” is a risk. Residential mortgages usually require permission to let, and insurance may also need changing to a landlord policy.

Rental cover is not the same as profit. Lenders test rent against interest at a stressed rate, not against your actual costs, so a property that makes money on paper can still fail the test at the loan size requested.

Tax is a separate conversation. The tax treatment of mortgage interest for individual landlords has changed in recent years, and holding property personally or through a company has different consequences. Take tax advice before deciding on a structure — this page does not cover it.

Letting the old home can help you buy the next one, but both properties then have to stand up. If something went wrong with your income or the tenancy, would you still cover two mortgages? The protection gap analyser is an optional illustrative check only.

Consumer buy-to-let: common questions

Next step

Note how you came to own the property, whether it has a mortgage now and with whom, a realistic monthly rent, your own income, and whether you own any other property. That tells us quickly whether you are looking at consent to let, consumer buy-to-let or a business case.