Why consumer buy to let should be taken seriously – Central Trust

A prime example of this would be consumer buy to let. Most people assume that the buy-to-let market is solely concerned with landlords looking to rent a property out to strangers and on a commercial basis.

Yes, this is the most common form of buy-to-let lending but there are circumstances where a property is let out but would not be eligible for a traditional buy-to-let mortgage.

A typical buy-to-let mortgage is a commercial arrangement and not regulated by the Financial Conduct Authority (FCA). The landlord isn’t automatically going to lose their home if their investment strategy fails.

A consumer buy-to-let mortgage is fundamentally different, being defined by the FCA as a “buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purpose of a business carried on, or intended to be carried on, by the borrower”.

The FCA created this definition in 2016 and regulates consumer buy to let as if it were a residential mortgage, concluding that a landlord may be an accidental one as they never intended to become a landlord and therefore should be treated as being more vulnerable than a property investor.

A consumer buy-to-let landlord may have initially bought the property with no intention of renting it out, or alternatively does not own any other investment properties.

Meanwhile, if they or other members of their family have resided in the property for a certain length of time then consumer buy-to-let regulations may well apply.

This has a direct bearing on supply; lenders take a similar view towards risk with consumer buy to let as they do with regulated residential mortgages. Consequently, most consumer buy-to-let providers are smaller building societies and apply a conservative approach to criteria compared to (non-regulated) buy-to-let.

First charge, second charge and one-year fixed rates available

At Central Trust, we believe a significant number of potential consumer buy-to-let borrowers are being overlooked for a mortgage regardless of their credit worthiness.

Our consumer buy-to-let product family is therefore an important part of our product proposition. We take a more nuanced view of affordability and can usually lend more than a mutual society would be prepared to; this includes considering applicants with historic credit issues.

Affordability is assessed on rental income, with the ability to top slice using personal income, subject to an inspection and evaluation if there is a rental shortfall.

The proposition is offered on a first and second charge basis. In the current rising interest rate environment, second charges are proving to be increasingly appealing to borrowers as they offer the ability to capital raise without losing any potential preferential rate of the existing first charge.

The borrowing need is often the same as a residential second charge, it is just the security which is different as it is not the customer’s main residence. Unsurprising the security often has a family member residing in it, as generally with a consumer buy-to-let case there is a personal attachment to the property compared to that of a professional buy-to-let landlord and therefore the borrower is likely to want it looked after.

The consumer buy-to-let market is niche, but we do not take the view that it should therefore be subject to niche lending criteria. That’s why, like our other products, it is available to borrowers in England, Scotland, Wales (up to 80 per cent loan to value) and Northern Ireland (up to 70 per cent LTV).

Meanwhile, in April we added a one-year residential fixed rate option to our product offering. It is available for first charge mortgages (on unencumbered properties only) as well as second charges, across our entire product offering.

It provides borrowers with a wider range of lending options in anticipation of improved market conditions and lower rates in 2024.

Accidental landlords are as important as professional BTL investors

Accidental landlords are just as important as professional buy-to-let investors and that’s why we work hard to provide solutions, on a first or second charge basis, to this under-served section of the buy-to-let community.

In a market where conditions are tough but there is increasing demand for capital raising, additional assets such as a consumer buy to let can be a lifeline. Advisers should capture as much information on a client and their available assets at the enquiry stage to enable them to explore all options and ensure the right outcome.