Why Can't I Borrow on a Buy-to-Let to Buy My Parents' Home?

While it's possible to obtain a Buy-to-Let (BTL) mortgage to purchase a property for rental purposes, you don't mention whether your parents are moving out, but assuming they are to continue to live there, then this would make it a "regulated buy-to-let" which not all lenders will allow, particularly where they already live there. 

There are several reasons why lenders may be reluctant to approve a BTL mortgage for buying your parents' house: 

1. Owner-occupier vs. investment property - BTL mortgages are specifically designed for investment properties, where the borrower intends to generate rental income. Lenders typically assess the rental income potential and investment viability of the property when considering BTL mortgage applications. If you intend to purchase your parents' house for them to live in as owner-occupiers rather than renting it out, it may not meet the criteria for a BTL mortgage  
2. Risk assessment - lenders evaluate mortgage applications based on factors such as the borrower's creditworthiness, income stability, and the property's value and rental income potential. If the property is intended for owner-occupation rather than rental income, the lender may perceive it as higher risk due to the potential absence of rental income to cover mortgage repayments  
3. Lending policies and criteria - lenders have specific lending policies and criteria for different types of mortgages, including BTL mortgages. These policies may restrict the use of BTL mortgages for purchasing properties intended for owner-occupation. Lenders may require borrowers to provide evidence of their intention to let the property and may impose restrictions on owner-occupancy  
4. Regulatory compliance - lenders must comply with regulatory requirements and guidelines governing mortgage lending, including responsible lending practices and affordability assessments. Purchasing a property with a BTL mortgage for owner-occupation may not align with these regulatory requirements, potentially limiting lenders' willingness to approve such applications  
5. Alternative financing options - if you're purchasing your parents' house for owner-occupation rather than rental purposes, alternative financing options such as residential mortgages or equity release products may be more suitable. Residential mortgages are specifically designed for owner-occupied properties and may offer more favourable terms and rates for this purpose. 

There's also a number of other issues to consider too, such as if you go down the route of a regulated buy-to-let would your parents be paying the full market rent? If this is a 'no' then it would mean you having to prove that you could afford the new mortgage, along with all of your current outgoings too. 

Then there's issue of whether you are paying full market value for the property. If you are not, then this would make it a "concessionary family purchase" too, which means that we'd need to find a lender who is comfortable with this element as well. In addition, because your parents would be effectively gifting you their equity, lenders will typically want them to have taken independent legal advice, and to see confirmation of this. 

Before proceeding with any mortgage application, it's essential to discuss your specific circumstances and financing needs with a mortgage broker. We can provide personalised advice and recommend the most appropriate financing options based on your situation, including whether a BTL mortgage or alternative financing solution is suitable for purchasing your parents' house.

Whilst this isn't necessarily the easiest case to place, it may still be possible to do. If you would like to discuss this in more detail, then please contact one of our mortgage experts on 0330 433 2927.