Main Residence mortgages and BTL mortgages are regulated differently and are underwritten differently.

Main residence mortgages overview

To state the obvious, main residence mortgages are used to buy the property that you mainly reside in – your home. Having said that, some lenders will also allow main residence mortgages for second, or even third homes! All of these mortgages are deemed to be the lowest risk by lenders and consequently the cheapest rates are offered. They are Regulated Mortgages, which means that the lenders and brokers who offer and advise on these types of mortgages are closely monitored and regulated by the industry’s governing body, the Financial Conduct Authority (FCA). In addition, as customers you are protected by the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service, in case anything goes wrong and you need to make a complaint.

The 2 main factors to consider main residence mortgages are income and deposit. For every 5% increment of deposit you put down more lenders and better rates become available to you. Some lenders will also lend you more more the larger the deposit you can provide. Although lenders each use their own affordability calculations to decide how much to lend to you –which includes income levels, whether you are employed or self-employed, your existing unsecured debt levels and other regular financial commitments – generally at high borrowing ratios e.g. 90% the income multiplies are capped at 4.5 x single or joint income and at low borrowing ratios these can be stretched to 5x or even 5.5x single or joint income.

Please give us a call and we can give you some tailor made advice.

BTL overview

Over the last 25 years the mortgage market, to support people wishing to invest in residential property, beyond their own home, has developed and become more sophisticated. These types of mortgages are, for the most part considered to be business mortgages and as such borrows are not protected by the FCA, FSCS, or FOS. They are known as Non-Regulated mortgages – although confusingly, most are offered by lenders that are regulated by the FCA!

With most lenders, the minimum deposit is 25% of the purchase price, but some lenders will stretch to 80%. The amount you can borrow is determined by how much the lender’s valuer thinks the property can be rented out for. The lender applies a stress test to the rate, so usually you will find that the lender uses a much higher interest rate than you will actually pay today and then require the rent to be a certain percentage more than this. For example, the interest rate for the mortgage might be 2.5% PA, but the lender will assume a rate of say 5% and then require the monthly rent to be 40% more than this. Some lenders are more generous than other with their stress tests. Most tend to be more generous if you take a 5 year fixed rate product. If you are a higher rate tax payer, you might find that a lender will lend you more if you buy in a company structure, rather than in your personal name. If the rent is relatively low compared to the value of the property, some lenders will use some of your surplus earnings to supplement the rental income and this is known as top-slicing.

Buy to let investors fall in to the follow categories.

• First time landlord
• Land lord owning 1 to 3 properties
• Professional landlord owning 4 to 10 properties
• Professional landlord owning 10+ properties

Few lenders offer mortgages in all of these categories, which is why you might start off using one particular lender and then move on the others as you build your portfolio.

There is a special category of buy to let mortgage which is regulated and not all lenders offer these. It’s a complex are and covers people who find themselves being owners of a property to rent out, rather than setting out intentionally to buy a property to rent out. They are known as accidental landlords and can include people who were unable to sell their home when they moved, or who inherited a property, or who have bought a property for a relative to live in. These mortgages are treated more like main residence mortgages in terms of the protections borrowers are given and so are regulated by the FCA and protected by the FSCS and FOS.

Please give us a call and we can give you some tailor made advice