Buy-to-let mortgages and Financial Conduct Authority regulation
06-20-2015
Although buy-to-let mortgages are similar financial products to residential mortgages, they are treated differently by the Financial Conduct Authority (FCA).
Why buy-to-let mortgages are not regulated by the FCA
Buy-to-let mortgages are viewed as a commercial loan: you’re borrowing to fund a venture that intends to make a profit. Commercial borrowers are expected to have a greater understanding of the lending agreement than someone who is buying a home to live in.
Therefore, in most cases buy-to-let mortgages are not regulated by the FCA. You enter into the mortgage on a non-advised basis. In other words, you make your own decision as to the suitability of the mortgage and you won’t be able to claim for compensation over mis-selling.
However, there can be exceptions to this.
Occasions when buy-to-let mortgages are considered FCA-regulated
According to the FCA handbook, buy-to-let mortgages are considered regulated when the following applies:
The lender provides credit to an individual or trustee, and takes a first legal charge over the property in the UK, AND
At least 40% of the property is used, or is intended to be used as a dwelling by the borrower, or the beneficiary of the trust (where the loan is provided to a trustee), or a member of the borrowers or beneficiary's immediate family. Immediate family is considered to mean:
1. A spouse or civil partner
2. A person (of any sex) whose relationship with the borrower or beneficiary has the characteristics of the relationship between spouses
3. A parent, sibling, child, grandparent or grandchild.
So the key question is this: when you first arrange the mortgage is it your intention, or a likely possibility, that you or an immediate family member will at some point live in the property?
This question must be asked by anyone providing you with a buy-to-let mortgage, without leading you to a more convenient answer.
If the answer is "yes", the mortgage will become regulated and must be treated the same way as a residential loan, meaning you have a little more protection if things go wrong.
Most lenders will then have criteria as to whether or not they will allow you take out a buy-to-let-mortgage. For more information see our guide to buy-to-let mortgages.
Compare buy-to-let mortgages
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