A buy to let mortgage in lending terms is very similar to a residential mortgage regulated by FSA rules, but just because something looks like a duck and sounds like a duck doesn’t always mean it is a duck.
Buy to Let is still in most circumstances considered to be a commercial loan, and borrowers are deemed to have a greater knowledge of the implications of their actions than someone looking to purchase their own main residence.
There are however, two common exceptions where a mortgage is seen and has to be treated as a regulated deal.
– The first is where you intend to live in the property yourself at any point in the future becoming an owner occupier. The key is when you are arranging the mortgage is it your intention, or a likely possibility that you will at some point move in yourself. This question must be asked by anyone selling you a buy to let mortgage without leading you to a more convenient the answer.
If this is a possibility then the mortgage will become regulated and must be treated the same way as a residential loan. Many people have moved into their buy to let properties years later through unforeseen changes in circumstances, but as this was not their intention from the outset they are not breaking any rules as long as their lender is informed and happy for them to do so.
– The second exception is when you intend for a close relative to occupy the property. A close relative is defined by the vertical family tree going upwards to parents and grandparents or downwards to children or grandchildren and also by one horizontal such as brothers and sisters. You do not need to worry about second cousins twice removed! Again this question must always be asked and answered honestly to the best of your knowledge at the time.
What about if you, or a relative only occupy a certain percentage of the property I hear you cry. Well there is technically a possibility of this being an exception to the above rules, but it would be extremely complicated and difficult to prove you never accessed other parts of the property and the safe course of action is again to treat it as regulated.
How is a regulated buy to let treated differently?
The sales process would become the same as a residential mortgage and can only be sold by a suitably FSA qualified and supervised person. A full fact find of all your personal circumstances and requirements would need to be completed showing that the K.Y.C (know your customer) rules were followed. A product best matching these needs must then be sourced with proof it was the most appropriate available for you at the time. A full K.F.I. (key facts illustration) would need to be produced along with a suitability letter stating why this product was chosen for you.
There are many other procedures a sales person would have to follow, but this would take a much longer article and only be suitable for insomniacs.
The big difference in term of products available is that only a few buy to let lenders will consider the extra complication of providing a regulated mortgage thus reducing your options on pricing and criteria.
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