Specialist lending and later-life mortgages (buy-to-let, equity release, shared ownership)
Domain 7 - Specialist lending and later-life mortgages
This domain tests products where the underwriting, the regulation or the client group differs from mainstream residential lending.
Buy-to-let
Underwritten on the property's rental income and the client's overall position: typically a minimum income (often £25,000), a rental cover test (interest coverage ratio of 125% at a stressed rate, often 5.5%, or 145% for higher-rate taxpayers), maximum LTV around 75%, and portfolio and HMO licensing checks. Limited company structures, Section 24 tax treatment (finance costs relieved at 20%) and energy performance requirements all affect the recommendation.
Shared ownership
The client buys a share (often 25–75%) and pays rent on the remainder plus service charges. Lenders assess affordability including rent and service charge; staircasing allows further shares to be bought, and the lease may restrict subletting and set a nomination period on resale.
Equity release and later life
Lifetime mortgages (lump sum or drawdown) roll up interest; home reversion plans sell a share of the property. Key protections: a guaranteed no-negative-equity guarantee, the right to remain, and the requirement for independent legal advice. Equity Release Council standards also cover fixed or capped rates and downsizing protection. Retirement interest-only (RIO) mortgages require a credible repayment strategy, usually sale of the home on death or a move to care.
Worked example
A landlord buys at £240,000 with a £180,000 interest-only buy-to-let loan at a 5.5% stress rate. Annual interest is £9,900, monthly £825; 125% cover is £1,031. Monthly rent of £1,200 passes. If the client were a higher-rate taxpayer the 145% test would require £1,196 - a marginal pass, so check the lender's exact calculation.
Traps
Applying residential affordability to buy-to-let; ignoring rent and service charges in shared ownership; recommending equity release without exploring downsizing, benefits and family impact; and forgetting the independent legal advice requirement.