FCA rules ordinarily prohibit buy-to-let borrowers from occupying their rental properties. Find out under what circumstances you may live in your own buy to let.
Why living in your own buy-to-let property is not normally possible
Financial Conduct Authority (FCA) regulation draws a distinction between residential and landlord mortgages.
Unlike mortgages for owner-occupiers, most buy-to-let mortgages do not come under FCA regulation. Thus, commercial investors enjoy a degree of flexibility that might not be possible under FCA rules.
Living in the property requires a regulated mortgage
Mortgage lenders can face enforcement action if they do not ensure at the point of sale that a client receives suitable advice. So if you intend to occupy a property, even for just one night, the mortgage on it must be regulated.
This is why most buy-to-let mortgage contracts stipulate that the customer doesn’t live in the property themselves, under any circumstances.
So if you live in your rental property while it is subject to a buy-to-let mortgage, you will invalidate your mortgage. If your lender discovers this, they may ask you to repay your loan in full.
But you may be able to live in your buy to let in the future
Buy-to-let mortgages aren’t unregulated in all circumstances. If you wish to let your property to a related person, or plan to occupy it yourself in the future, the sale will fall under FCA regulation.
Taking out a regulated buy-to-let mortgage allows you or a family member to occupy 40% or more of the mortgaged property, as per FCA guidelines.
Please note that Commercial Trust does not handle regulated buy-to-let mortgages.
What if I’ve paid off my buy-to-let mortgage?
If you’ve paid off your mortgage, these points are all moot. Without a legal charge on a property, a lender cannot tell you what you may or may not do with it.
Remember, though, that you still must meet your legal obligations as a landlord. If tenants occupy your property and you wish to regain possession to live in it yourself, you will need to do so through the proper channels as normal.
Where possible, you should let your tenants know at the beginning of the tenancy that you may wish to move into the property in the future.
Renting out your home
The inverse of moving into a rental property you own is renting out the home you occupy as your main residence. You might consider renting out your home if:
- you need to move but aren’t able to sell
- you wish to return to the property in the future
- you want to retain your old property as a source of income
The process of letting out your current home so you can move into a new home is called ‘let to buy’.
How does let to buy work?
Mortgage regulation works both ways. Just as you can’t usually live in a mortgaged buy-to-let property, you can’t rent out a mortgaged residential property. You will need to either remortgage to a buy-to-let loan, or seek consent to let from your residential lender.
Mortgage lenders have differing policies on consent to let. Some might charge higher interest rates or impose a limited time frame. Others may outright refuse. Furthermore, consent to let does not permit additional borrowing; so if you need to raise a deposit for your new property, you will need to find the funds elsewhere.
A buy-to-let remortgage is your other option. If there is enough equity in your property, this route allows you to raise funds for a deposit. But you will need to pay the switching fees and other costs associated with remortgaging. And if the size of the loan is more than 75% of the value of your property, you may struggle to find a buy-to-let mortgage.
How will letting to buy affect the new mortgage?
Lenders apply comprehensive affordability tests for owner-occupier mortgages. These tests will take into account your other financial obligations, including the mortgage on your original property.
This might make it more difficult to obtain finance for a new home. Some lenders, particularly mainstream firms, will not include your rental income in the assessment. Others may do so only after you can evidence a track record of rental property management. It may be wise to consult a broker for help finding a lender who will include rental income in the affordability assessment from day one.
Becoming a landlord
For many let-to-buy landlords, this transaction is their first foray into buy to let. There is a lot to learn about being a landlord, and it is worthwhile doing as much research as you can before you take the plunge.