Buy-to-let mortgages are not regulated, however if you look at the guidelines laid down by the Financial Conduct Authority for lending to customers in retirement, Tony Müdd, divisional director tax and consultancy at St James’s Place, says affordability is clearly the key concern.
Mr Müdd says any professional adviser will need to assess the customers’ ability to pay the mortgage, particularly when the property is not being rented out.
In terms of assessing the suitability of this type of investment, Mr Müdd says this is a fundamental pillar of the regulator’s treating customers fairly requirements.
As to how one assesses suitability, Mr Müdd says the adviser must consider the advantages and disadvantages of this investment in itself and then compare this against other alternative investments, with particular consideration given to situations where the client is effectively replacing an existing investment, such as a pension (including withdrawing funds).
Finally, he says it is essential that the client understands these options and how suitability was assessed.
Bob Young, chief executive at Fleet Mortgages, says it is vital that advisers provide a general view for clients considering this type of investment across their whole financial circumstances, particularly if they are using pension pot money to fund a deposit, for example.
Mr Young says the adviser might want to make it clear to the client that income levels may well fluctuate with void tenancy periods, for example.
He says: “Individuals who are accessing pension pots need to be absolutely clear on the decision they are making and how it might impact their ability to cover off all their retirement living expenses now and in the future.
“The other point to raise is around the maximum age that most buy-to-let lenders will offer mortgages up to – Fleet Mortgages has just increased our maximum age to 85 but others only go up to 75 – this will obviously be a consideration going forward.”
In terms of the future requirements for this type of advice, advisers need to be aware that from next year the introduction of the European Mortgage Credit Directive means ‘consumer buy-to-let’ will be regulated.
This covers, for example, individuals who have inherited a property and want to take out a mortgage to let it out. If the individual is already an existing landlord then this investment can remain unregulated.