Consumer buy-to-let mortgages are intended for people who become landlords by circumstance rather than as part of a business. These mortgages are assessed in a different way because they come under consumer regulation.
In this guide, we outline how consumer buy-to-let mortgages work, who they may be suitable for, the eligibility criteria lenders use, and how to secure the best deal.
What is a consumer buy-to-let mortgage?
A consumer buy-to-let mortgage is a type of buy-to-let mortgage regulated under the FCA’s consumer buy-to-let lending rules, as the borrower is not mainly acting for business or investment purposes.
This usually applies when you let out a property you previously lived in, inherit a property and choose to rent it out, or become a landlord because of a change in personal circumstances rather than through a planned investment decision.
As a result, these mortgages are often suited to accidental landlords, and because consumer buy-to-let mortgages are regulated, they offer stronger protections than standard buy-to-let mortgages for investors.
How do they work?
Consumer buy-to-let mortgages work in much the same way as standard buy-to-let loans, with repayments typically met through rental income, and many mortgage products available on an interest-only basis.
That said, lenders often use affordability checks that are closer to residential mortgage assessments, looking at your personal income, outgoings, and existing financial commitments as well as the anticipated rental income. This reflects the regulated nature of this form of borrowing.
Because consumer buy-to-let mortgages are subject to greater regulation, borrowers may also be able to refer complaints to the Financial Ombudsman Service (FOS) if a dispute occurs, which is not usually available with most standard buy-to-let mortgages.
Who are they suitable for?
Consumer buy-to-let mortgages are most suitable for accidental landlords, for example:
Homeowners who move in with a partner while keeping their existing property
People who relocate temporarily for work
Individuals who inherit a property and choose to let it out
The key point is that letting the property is not your main business activity or investment strategy, and you did not originally purchase it with the intention of renting it out.
Eligibility criteria for consumer buy-to-lets
Each lender will have its own criteria and approach to assessing an application, but the main requirements for consumer buy-to-let mortgages usually include:
Your circumstances: Lenders need to establish that you qualify as a consumer, rather than professional, landlord. This generally means the property was once your main residence, has been inherited, or is being let because of a change in personal circumstances.
Rental income: The expected rental income must satisfy the lender’s stress test, usually measured through a rental coverage ratio, such as 125% to 145% of the mortgage payments.
Personal affordability: Unlike many standard buy-to-let mortgages, lenders may assess your employment income, regular outgoings, debts, and other financial commitments. Some lenders set minimum income requirements, although others may be more flexible where the rental figures are strong and there is a healthy level of equity.
Deposit and loan-to-value (LTV): Deposit requirements are often in line with standard buy-to-let mortgages, typically starting at around 20% to 25%. In some cases, higher LTV options may be available, but lower LTV applications usually benefit from better rates and a broader range of lenders.
Credit history: Your credit history is an important part of the lender’s decision. Some may accept minor or historic credit issues, but more serious adverse credit is likely to limit your options or mean using a specialist bad credit buy-to-let lender.
Property type: The property must be suitable security for the lender. Standard construction residential properties are generally the easiest to finance, while unusual homes or non-standard construction properties may need a specialist lender.
Existing mortgage: Where a residential mortgage is already in place, lenders may look at whether consent to let has previously been granted, the outstanding mortgage balance, and whether switching to a consumer buy-to-let mortgage is the right option.
What are the differences between consumer and standard buy-to-let?
The main differences between consumer and standard buy-to-let mortgages tend to relate to regulatory status and borrower intent:
|
Feature |
Consumer buy-to-let |
Standard buy-to-let |
|
Regulation |
Regulated by FCA |
Typically unregulated |
|
Borrower type |
Accidental or non-professional landlord |
Professional landlord |
|
Affordability assessment |
Personal income and rental income |
Primarily rental income |
|
Advice required |
Usually recommended |
Not always necessary |
|
Purpose |
Non-business letting |
Property investment letting |
|
Property use |
A property you’ve had a connection to that wasn’t originally purchased for the purpose of letting it out |
No specific requirements as the property was bought with the purpose of renting it out |
How to get a consumer buy-to-let mortgage
Speak to a broker: The process usually begins by speaking with a broker to confirm that you meet the criteria for a consumer landlord. They can then review your expected rental income, the amount of equity you hold in the property, and whether it would be more suitable to remortgage with your existing lender or move to a new one.
Find the right lender: Consumer buy-to-let criteria can differ widely between lenders, and not every lender offers these products directly. For that reason, working with a broker is often the simplest way to identify the lenders best suited to your property and personal circumstances.
Submit your application: A broker can also help present your consumer buy-to-let application in the right way, especially if you are moving from a residential mortgage, dealing with consent to let, or balancing several property-related commitments. This can help reduce the risk of delays or declined applications.
What to consider first
Before applying for a consumer buy-to-let mortgage, it is worth considering several important factors that could affect both lender eligibility and your longer-term financial position:
Your reason for letting the property
Lenders will need to be satisfied that the property was not originally purchased for investment purposes. Commonly accepted situations include moving in with a partner, relocating for work, inheriting a property, or having difficulty selling your home.
Whether consent to let is available
If you already have a residential mortgage, your current lender may offer temporary consent to let rather than requiring you to remortgage straight away. This can work well in short-term circumstances, although it may come with additional fees or a higher interest rate.
Equity and loan-to-value (LTV)
Consumer buy-to-let mortgages often require at least 20% to 25% equity, which effectively acts as your deposit. Some lenders may ask for more, depending on your circumstances, credit history, and projected rental income.
Rental income expectations
Although consumer buy-to-let mortgages are regulated and your personal income may be considered, lenders will still check that the expected rental income is enough to cover the mortgage payments under their stress testing requirements, much like a standard buy-to-let mortgage.
Your personal affordability and financial commitments
In contrast to standard buy-to-let mortgages, lenders may take a closer look at your personal income, regular outgoings, and existing debts because this type of borrowing falls under regulated mortgage rules.
Future plans for the property
Think about whether the property will be let on a temporary basis or as a longer-term arrangement. This may affect whether a consumer buy-to-let mortgage, consent to let, or later moving onto a standard buy-to-let mortgage is the most suitable route.
Tax and insurance implications
Letting out a property may create additional income tax responsibilities and the need for specialist landlord insurance. Understanding these costs from the outset can help you plan properly and decide whether this approach is financially sustainable.
UK consumer buy-to-let mortgage lenders
A number of mainstream UK lenders offer consumer buy-to-let mortgages, although their criteria and level of flexibility can differ widely. Lenders that may consider this type of mortgage include:
Paragon Bank
Accord Mortgages
Together Money
Family Building Society
That said, each lender will have its own rules on the types of consumer buy-to-let applications it is prepared to accept. Not all lenders promote these products directly to borrowers either.
To explore the full range of consumer buy-to-let mortgage lenders available for your specific circumstances, it is usually best to speak with an experienced broker.
Frequently Asked Questions
You will usually need specialist landlord insurance rather than a standard home insurance policy. This typically includes buildings cover and landlord liability protection, with optional extras such as rent guarantee cover or legal expenses insurance depending on your circumstances.