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In terms of rights, whats the difference between getting a regular mortgage and a buy-to-let mortgage for a property in the UK?

For example, if I wanted to invest in a property, and got a regular mortgage, instead of a buy-to-let mortgage, will I be legally stopped from renting that property out?

I.e, I don't understand why buy-to-let exists if you can simply get a regular mortgage with a smaller deposit and rent it out?

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    Your last sentence says "Why would you do X if you could just do Y?" - the obvious answer is, you can't do Y. Example wording from the Halifax - they'll all be the same – AakashM Jul 31 '14 at 11:22
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Residential mortgages normally explicitly state that the property cannot be let without explicit permission, whereas BTL mortgages typically require that the property be let.

There are other differences. Residential mortgages are regulated, which means that consumers have a degree of protection from mis-selling; most BTLs are not, as landlords are expected to know what they're doing.

Affordability of residential mortgages are based on your income, since that is how you are going to pay for them. BTLs are (mostly) assessed based on the property's rental income, since it's that that will fund the mortgage.

Finally, residential mortgages are typically done on a repayment basis, so that at the end of the term, you've paid off the entire loan, whereas BTLs are typically interest-only, on the assumption that you'll either sell the property, or remortgage, at the end of the term.

(I've used words like "typically" a lot to give an overall picture of the differences. Obviously it's a bit more complicated than that, and there are exceptions to a lot of the above descriptions.)

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In my experience buy-to-let mortgages charge a higher rate of interest than an personal residential mortgage. They are regarded as a business enterprise and presumably the banks calculate that they carry a higher risk. A bank would probably take action if the property on an ordinary mortgage was rented out, as you would be breaking their terms. Policies could be rendered void. The terms on an ordinary mortgage disallow renting out the property.

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Another factor that makes Buy to let more expensive is the risk involved. With a buy to let you are dependent on finding a tenant that will keep regular payments. if the property is left empty you need to finance the mortgage yourself putting you under financial strain and raising risk. Also as Chis mentioned they are regarded as a business enterprise, If the mortgage was to be taken by a business that would be very high risk for a bank as the business could dissolve leaving the bank out of pocket. Because of this it can be very difficult to get a buy to let through a business unless you are moving from a personal portfolio. For a regular mortgage these risks don't exist so this is reflected in lower interest repayments.

It's because of these differences in risk that banks created buy to let so they can better manage those risks.

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Buy to let mortgages are considered to be a business descion and are mostly unregulated. A residential mortgage where you will live is regulated the lender has a much high resposnibility toward the borrower and ensuring the mortgage loan is affoardable.

Buy to let v residential Buy to let costs more and will almost always require a higher deposit (you cant help to buy if you want to rent a property out.)

Consent to let Residential mortgage lenders do give a consent to let where a new job migh force a move across country or another family change may require that you want to keep hold of the family home but rent it out.

Many lenders are ok with this for 6-24 months after this time they will push for you to get a full buy to let mortgage. A residential mortgage will never allow for anyone other than the mortgagee to live in the property without consent. If you do not have consent a lender could say we want our money now leaving you with the bill for the outstanding mortgage.

Buy to let exists because Government & lenders wanted a way in the early 90's to encourage housing provision to be supported by the private sector. Rightly or wrongly lenders needed a legal framework to provide mortgages on properties where the owner would not live in them and an Assured shorthold tenancy would be used to regulate the rent.

In 2018 this is far more complicated after nearly two decades of rising house prices. Government took action. Landlord investors face higher tax bills, far tougher affoardability tests for a mortgage. The upshot of this could be a sell off by landlords who are finding that property investment is not as profitable now

  • I'm pretty sure the UK doesn't have any knid of 'unregulated' mortgage... – AakashM Sep 13 '18 at 7:53
  • @AakashM: on the contrary: BTL mortgages are unregulated if the mortgage holder (and their family) don't live there; in other words, most BTL mortgages are unregulated. See for example this article. – Steve Melnikoff Sep 13 '18 at 16:29
  • @SteveMelnikoff ah I see, 'regulated' / 'unregulated' are specific terms of art. My mistake. I bet there are still some 'regulations' though! :) – AakashM Sep 14 '18 at 7:59

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