What is the difference between regulated and unregulated mortgages?
A clear example of a regulated mortgage contract is a loan taken out by an individual to buy a home for themselves, where the loan is secured on that home. However, there is no requirement that the borrower must occupy the property. There is a stipulation that at least 40% of the land should be used as a house, but it is not necessary that the borrower uses it as a residence. For example:
- a loan may be a regulated mortgage contract if the property secured by the loan is to be occupied by the borrower’s relatives as their home; or
- a loan may be a regulated mortgage contract if the borrower does not occupy the property and instead plans to sell it to a third party, with the mortgage remaining on the property until then.
Essentially, FCA-regulated loans offer more protection than unregulated ones, providing consumers with an extra layer of safety beyond common law or existing consumer protection laws. These loans are also subject to supervision and enforcement where appropriate.
With an unregulated purchase for investment purposes, such as a buy-to-let mortgage (also known as an investment property loan), the landlord’s intention is to rent the property out to private tenants rather than family members. A buy-to-let credit agreement states that the borrower is considered to be entering into, or intending to enter into, an agreement for business purposes, meaning the borrower has purchased or plans to purchase the property or land secured by the mortgage.
At the time of purchase, the borrower intended that the land would be occupied as a dwelling under a rental agreement and that it would not be occupied by the borrower or a related person, such as themselves or a family member.
Because unregulated buy-to-let mortgages are not intended for landlords who wish to move into the property themselves, they are not regulated by the FCA.
What does “not regulated by the FCA” mean?
Simply, it means you are not protected by the Financial Conduct Authority, and brokers and lenders will not be subject to the supervision and enforcement applicable to regulated mortgage contracts. If you require further clarification, you should discuss this with your chosen mortgage adviser or broker during your initial conversations or correspondence. To verify whether your broker or mortgage adviser is regulated, you can visit the FCA website at https://www.fca.org.uk/firms/financial-services-register