Last reviewed on 14th September 2023 by Martin Alexander (Mortgage Advisor)

If you wish to rent a property to a family member and are using a mortgage to do so, then you will more than likely require a regulated buy to let mortgage. It’s not uncommon for family members to rent from other family members as it can have advantages. That being said, it can also carry some risks, especially from a mortgage lender’s perspective.

The majority of lenders tend to stay away from properties that are rented to family members. This is simply because of the risks involved. It can be difficult when you need a mortgage in these circumstances, but it certainly isn’t impossible.

If you require a regulated buy to let mortgage, it’s crucial you get the right advice before making any commitments. Applying for an unsuitable mortgage could result in your application being declined.

What is a regulated buy to let mortgage?

A regulated buy to let mortgage is used when a property is rented to an immediate family member. The reason the term ‘regulated’ is used, is because conventional buy to let mortgages aren’t regulated.

If a buy to let mortgage is regulated, it falls under tighter guidelines as opposed to a regular buy to let. Regulated buy to let mortgages are regulated by the FCA. As a result, the application process will be strict in comparison with a conventional buy to let mortgage.

Common examples of regulated buy to let include:

• A landlord is renting a property to a sibling
• Parents are renting a property to their child
• A landlord is renting a property to parents
• Grandparents renting from their sons/daughters

It’s important to note that regulated buy to let only applies to immediate family and does not apply to cousins, relatives, uncles and aunties. If you rent to a cousin or relative, or any family member that isn’t your direct sibling, parent, child or grandparent, then a conventional buy to let mortgage should be sufficient.

How much deposit will I need for a regulated buy to let?

Most lenders will require at least a 25% deposit and will only lend up to 75% LTV. That being said, lenders will have less flexibility due to the regulation involved.

The best mortgage deals are typically available when higher deposits are used. This is because lenders have more security on their loans and can therefore lower their mortgage rates accordingly. If you have a 40% deposit and only need a 60% mortgage, then you should be eligible for some headline rates.

How much can I borrow with a regulated buy to let?

Regulated buy to let mortgages don’t tend to have the most favourable rates. This can also have a negative impact on the amount you can borrow.

In an already restricted market, the lenders that are prepared to offer you a mortgage may only do so on their own terms. Unfortunately, these terms can often be rigid, but that’s not to say you can’t still get a great deal. Each borrower has different circumstances and we’ve managed to secure some great regulated buy to let deals in the past.

Regulated buy to let mortgages are assessed in a completely different way from conventional buy to let mortgages. Conventional buy to let is typically assessed on the rental income of the property, rather than the applicant. Regulated buy to let is largely calculated on the income and affordability of the borrower. This is because lenders want to be satisfied that the borrower can repay the mortgage, even if the property isn’t generating a rental income.

Lenders adhere to their own unique lending guidelines, so some lenders are more flexible than others. That said, some lenders require borrowers to earn at least £30k per annum to be approved for a regulated buy to let mortgage.

There are of course lenders that don’t require you to earn this much, but some lenders require you to earn even more. Maximum mortgage amounts are typically calculated at around 3-4x your annual income.

How is my income calculated if I’m self-employed?

If you’re self-employed then lenders will assess your net income and not your gross income or turnover. If you do need a regulated buy to let mortgage, then do speak to a specialist in this field.

You could waste a lot of time, money and effort in applying to lenders that just aren’t suitable. A number of high street lenders simply don’t offer regulated buy to let deals.

What if my family member moves out?

If you have a regulated buy to let and your family member is moving out, then you should be able to switch to a standard buy to let mortgage. Always be honest with your lender and advisor about any changes to the property while you have a mortgage. Furthermore, switching to a standard buy to let from a regulated buy to let can have advantages.

What’s the difference between regulated and unregulated buy to let?

Conventional buy to let or ‘unregulated’ buy to let is where landlords rent to non-family members.

In comparison, traditional buy to let may allow:

• Better mortgage rates
• Less deposit, which can mean an increase in equity
• Greater flexibility
• More lenders to choose from
• Increased cash flow

What if part of my property is let to a family member?

If your property is only partly let out to a family member, then a standard buy to let mortgage may be sufficient. Lenders will calculate whether or not you need a regulated buy to let. The calculation is based on a percentage of how much of the property is occupied by your family.

For instance, a large number of lenders follow guidelines that suggest anything over a 40% occupancy would require a regulated mortgage. Anything less than a 40% occupancy should be granted with a traditional buy to let mortgage. An example of this would be if you had an HMO or multi-let property.

If your family member only occupies a room within the property, then you could qualify for a standard buy to let. You may also qualify for an HMO mortgage.

Regulated buy to let specialists

If you require a regulated buy to let mortgage you can speak to one of our experts. Regulated buy to let is considered a niche mortgage type. For this reason, there isn’t a wide variety of lenders and deals to choose from. Nonetheless, our advisors specialise in this area and have access to exclusive deals.