Last Updated on 18th September 2020
If you decide to let 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. Having family as tenants can have advantages but it can also carry some risks, especially from the perspective of a mortgage lender.
The majority of lenders tend to stay away from properties which are let to family members, simply because of the risks involved. It can be difficult when you need a mortgage in these circumstances, but it certainly isn’t impossible.
Our specialists have helped many borrowers secure regulated buy to let mortgages. If you require further advice or wish to get started, you can make an enquiry below.
What is a regulated buy to let mortgage?
A regulated buy to let mortgage is used for 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 is regulated, it falls under tighter guidelines as opposed to regular buy to let. Regulated buy to let mortgages are regulated by the FCA and therefore borrowers do have to jump through many more hoops in comparison with a conventional buy to let mortgage.
Common examples of regulated buy to let can be found below:
- A landlord is renting a property to a sibling/siblings
- Parents are renting a property to their child/children
- A landlord is renting a property to parents
- Grandparents renting from their sons/daughters
Important: 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?
The majority of lenders will require at least a 25% deposit and will only lend up to 75% LTV. That being said, each lender is different and as a result of the mortgage being regulated, lenders have less movement on how flexible they can be.
The best mortgage deals are typically available for when higher deposits are used. This is because lenders have more security on their loan and can therefore lower their mortgage rates accordingly. If you have a 40% deposit and only need a 60% LTV, 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.
The way lenders assess affordability on regulated buy to let mortgages are completely different to the way conventional buy to let mortgages are assessed. Conventional buy to let is usually assessed on the rental income as a forefront for the loan. Regulated buy to let is largely calculated on the income and affordability of the borrower. The main reason behind this is that lenders want to be satisfied that the borrower can repay the mortgage irrespective of whether or not the property is generating a rental income.
Lenders have to adhere to their own unique lending guidelines, so some lenders do offer more flexibility than others. That said, there are lenders that may require borrowers to earn at least £30k per annum in order to be granted a regulated buy to let mortgage. There are of course lenders that don’t require you to earn this much, but there are also lenders that require you to be earning even more. Lenders will also tend to lend around 3-4x your annual income, as a maximum mortgage amount.
What 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 end up wasting a lot of time, money and effort in applying with lenders that just aren’t suitable from the outset. A number of high street lenders simply don’t offer regulated buy to let deals.
What if my family member moves out?
If you already have a regulated buy to let, but 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 or advisor about any changes to the property for which you have a mortgage on. Furthermore, switching to a standard buy to let from a regulated buy to let can have advantages. For instance, take a look below.
Traditional buy to let when compared with regulated 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
If you find yourself in this situation, then you can ask our advisors a question at any time.
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 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 aim to rent out an HMO or ‘multi-let’. 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 regulated buy to let and have access to exclusive deals.
As our specialists also have access to the whole UK market, you can be sure that we’ll secure you the most viable mortgage possible, based on your own individual circumstances.