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Buy-to-let mortgages and Financial Conduct Authority regulation



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 only contains market information and does not constitute advice or a personal recommendation in any way whatsoever. In relation to non-deposit based savings, the value of investments and the income from them can fall as well as rise and you may not get back the full amount invested. The products shown will be arranged on a non-advisory basis, unless otherwise agreed. If you are at all unsure of the suitability of a particular product for your circumstances you should seek regulated financial advice. Please refer to our Regulatory Disclaimer and Privacy Policy for further information. is a trading style of Momentum Financial Technology Ltd which is authorised and regulated by the Financial Conduct Authority (registration number 561538).

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