Buy To Let For Family Members

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Getting a buy to let for family has becoming increasingly popular in recent years. Rising house prices, increased rents and mortgage interest rates, and the high cost of living has made it difficult for people to get and stay on the property ladder.

This had led to a jump in people buying property for family members to live in and rent from them. It could be parents buying for their children, or adult children buying for their siblings, parents, or grandparents.

Buy to lets for family members are treated differently to ‘normal’ buy to lets. It’s important to understand why and to be up-front about your intentions for the property.

What are the risks in renting to family?

Renting to an immediate family member may be convenient but it does come with its own risks. Problems often stem from relatives expecting lower rent than market rate. This could cause lenders to worry about whether or not you could afford the mortgage. Your relative might also pay rent late or not at all, believing you won’t kick them out.

These inherent risks can make getting finance for this type of transaction tricky. Most mainstream lenders tend to shy away from offering finance in these cases. In addition, a certain type of mortgage is required: it is known as a regulated buy to let mortgage.

What are the differences between a ‘normal’ buy to let mortgage and a buy to let for family mortgage?

A ‘normal’, unregulated buy to let mortgage is purely for houses or flats that are going to be rented to paying tenants who are not related to you. People who take out these buy to let mortgages do so with the intention of becoming landlords and making money. This type of mortgage is therefore seen as a business venture or investment. It isn’t covered by the Financial Conduct Authority’s (FCA) consumer regulations, which are designed to protect ordinary people rather than businesses. 

If you want to buy a property with the sole intention of renting to a family member, however, it isn’t viewed as an investment. The belief is you are doing it to help out a relative rather than to profit. That’s true even if you are going to make money from it. This type of mortgage comes with greater protection for you. It is governed by the FCA’s regulations which protect against mis-selling and poor advice.

What deposit is required on a buy to let mortgage for family?

Any kind of buy to let mortgage is riskier to a lender than a residential mortgage. Most people will do whatever they can to pay the mortgage on their own home because it keeps a roof over their heads. The perception among lenders is that landlords won’t care about the rental property as much because it isn’t their home.

A bigger deposit is therefore needed for a buy to let mortgage. Generally the minimum deposit required is 25% of the value of the property. Every lender has their own criteria, however, so deposit levels may vary. For example, a bigger deposit may be required if you have adverse credit.

How much could I borrow?

Lenders consider regulated buy to let mortgages high risk, even more so than standard buy to lets.

Affordability is often determined by an assessment of your income and expenditure, much like a residential mortgage.

This is because of the risk that your relative may not pay rent or may pay a reduced rate of rent. Should that be the case, you still have to afford the monthly mortgage payments.

If you have a mortgage on your own home, you have to be able to afford both that mortgage and any new mortgage you are looking to take out.

Can I change to a ‘normal’ buy to let mortgage in future?

If your relative moves out, you should consider a change to an unregulated buy to let mortgage if you aim to keep the property and rent it out to a tenant. A new mortgage would be subject to lender criteria, credit checks, and affordability checks. More options should be available in an unregulated buy to let market.

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