Buy-to-let Agreements

From 21st March 2016, the way in which buy-to-let agreements will need to be treated will depend on the reason for the mortgage being applied for, and will fall under one of the following:

  • Consumer buy-to-lets
  • Business buy-to-lets

 

Consumer buy-to-lets

The key trigger in deciding as to whether an agreement will be classed as a consumer buy-to-let (CBTL), is the reason for the borrowing.

If a borrower is acting for purposes which are outside their trade, business or profession, they will be classed as a ‘consumer’ and the agreement will be deemed to be a CBTL.

CBTLs will not be regulated by the FCA but will fall under the Government’s ‘appropriate framework’ – which is sometimes referred to as the ‘non-FSMA appropriate framework’ / ‘CBTL regime’.

This framework sets out a number of ‘standards’ which will need to be met (these are similar to the FCA’s conduct rules relating to regulated mortgage contracts).

Examples of when an agreement will be deemed to be a consumer buy-to-let:

  • Where a property has been inherited and the individual is unable to sell it so they resort to a buy-to-let arrangement
  • Where a borrower has previously lived in a property but is unable to sell it so they resort to a buy-to-let arrangement

In the above examples, these borrowers have become a landlord by default, rather than making an active business decision, and are sometimes referred to as ‘accidental landlords’.

The FCA has indicated that it does not expect many buy-to-let agreements to fall under the scope of a CBTL.

Business buy-to-lets

As with CBTLs, the key trigger in deciding as to whether an agreement will be classed as a business buy-to-let (BBTL), is the reason for the borrowing.

If a borrower, who is deemed to be, or who identifies themselves as acting ‘by way of business’ will result in the agreement being deemed to be a BBTL i.e. a borrower who will be entering into a buy-to-let agreement wholly or predominantly for the purpose of a business.

Activities relating to BBTLs will remain unregulated i.e. will not fall under the regulation of the FCA nor under the scope of the Government’s ‘appropriate framework’.

‘By way of business’

If a borrower meets any of the conditions noted below, a buy-to-let agreement will be considered ‘by way of business’:

  • If the borrower is looking to enter into a buy-to-let credit agreement and at the time of purchase, the borrower intends that the property would be occupied as a dwelling on the basis of a rental agreement and would not at any time be occupied as a dwelling by the borrower or by a related person
  • If the borrower has purchased a property and since the time of purchase, the property has not at any time been occupied as a dwelling by the borrower or by a related person
  • The borrower currently owns a property which is occupied as a dwelling on the basis of a rental agreement and is not occupied as a dwelling by the borrower or a related person

The FCA’s definition of a ‘related person’ includes a borrower’s spouse / civil partner / parent / brother / sister / child / grandparent or grandchild.

Examples of when an agreement will be deemed to be a business buy-to-let:

  • Where the borrower uses the mortgage to purchase a property with the intention of it being occupied (but not by themselves nor a related person) on the basis of a rental agreement
  • Where the borrower has previously purchased the property with the intention of letting it out and neither the borrower nor a related person has occupied the property
  • Where the borrower already owns other properties that have been let out on the basis of a rental agreement

Example of when an agreement would not be deemed to be a business buy-to-let:

  • Where a person is looking to borrow with the aim of purchasing a property so their child can occupy it whilst attending college / university. This would not fall under the FCA’s definition of a buy-to-let agreement as one of the criteria to be met is that ‘the property cannot at any time be occupied as a dwelling by the borrower or a related person’.

 

Please remember

If any agreement falls under the FCA’s definition of a ‘regulated mortgage contract’, it will need to be treated as such i.e. the FCA’s rules for regulated mortgage contracts will need to be applied.

Testimonials

He is helpful, listens and understands my questions and concerns. He seeks out the best alternatives and is mindful of both potential benefits and ongoing costs to me. He acts promptly to secure the right product and is available for any queries.

Steve from Ilkeston

I have used them for my pension advice for many years. Always a really great service.

Paul from Milton Keynes
 

CALL US NOW   T: 03452 411102 T: 01908 380505

Alternatively send an email enquiry

Request a Call Back

:

Data protection
You voluntarily choose to provide personal details to us via this website. Personal information will be treated as confidential by us and held in accordance with the Data Protection Act 2018. For more information on how we protect and deal with your personal information, please refer to our Privacy Notice. You agree that such personal information may be used to provide you with details of services and products in writing, by email or by telephone.

 

The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers based in the UK. Odyssey Wealth Management Ltd, Registered Office: Home Ground Barn, Pury Hill Business Park, Alderton Road, Towcester, NN12 7LS. Registered in England number; 08756989

facebook