Find out how the Financial Conduct Authority (FCA) regulation that separates residential and buy-to-let mortgages works, what a regulated mortgage is, and what it means when a mortgage is regulated.
What is a regulated mortgage?
FCA regulation describes a range of measures designed to protect mortgage customers from inappropriate advice and mortgage mis-selling. Here are a few key points:
- The person giving you mortgage advice must be qualified and supervised by the FCA
- The advisor must follow certain rules to show that they took account of all your personal needs and circumstances
- You will get an illustration of any mortgage recommended to you, along with an explanation of why it is suitable
- You will receive a binding offer at some stage in the advice process and will have a minimum of seven days to reflect on the offer
Regulation also dictates how your lender treats you throughout the mortgage term and how they deal with problems like arrears.
Will your mortgage be regulated?
If it is a buy to let mortgage, probably not.
For a mortgage to be regulated, the borrower or a related person would need to occupy at least two fifths (40%) of the land on which it is being secured. Your buy to let mortgage would thus only be regulated if:
- You or a close family member would be occupying a large amount of the property
- Your tenant would be a member of your family
- You intend to move back into the property at some point in the future
What does it mean that your mortgage isn’t regulated?
FCA regulation means that lenders must assess a mortgage to make sure that they are affordable. This means your income has to cover the cost of the loan. Usually, the loan can’t be more than four times what you and another applicant, if any, earn in a year.
Lenders can assess unregulated loans on the generative qualities of the property being mortgaged. To landlords, that’s the potential rent. This means that landlords on lower incomes can still potentially afford to purchase more expensive properties, provided the rental potential is good.
If you live in a buy-to-let mortgaged property or let out a residential mortgaged property, you violate your mortgage terms. Regulation means that there’s no grey area between residential and buy-to-let mortgages, making them quite inflexible in some cases.
Unless you’re careful about where you go, you might not get the most suitable mortgage advice.
How we can help
Whilst the mortgages that we recommend aren’t regulated, we still follow FCA guidelines when providing mortgage advice. This includes making sure that all advice and recommended products are suitable and affordable for you.