The Financial Conduct Authority does not regulate on Buy to Let Mortgages
Buy-to-let mortgages have become a popular investment choice for property investors in the UK. However, many landlords wonder whether it is possible to rent out their property to a family member with a BTL mortgage. While it is possible to do so, there are certain legal and financial implications that need to be considered.
In this article, we will explore the topic of renting to a family member with a BTL mortgage in the UK. We will provide guidance on the rules and regulations surrounding BTL mortgages and renting to family members and identify potential legal and financial implications of doing so. Additionally, we will offer tips and guidance on how to manage a rental property when renting to a family member.
It is essential to understand the regulations and guidelines surrounding BTL mortgages before renting to a family member. Failure to comply with these regulations could lead to financial penalties and legal issues. Therefore, it is crucial to conduct thorough research and seek professional advice before embarking on this venture.
Overall, this article aims to provide landlords and property investors with valuable information on renting to a family member with a BTL mortgage. By understanding the regulations and guidelines surrounding BTL mortgages and following the best practices for managing a rental property, landlords can successfully rent out their property to a family member while avoiding legal and financial issues.
Post Topics
Can you Rent to a Family Member with a BTL Mortgage?
Why can’t I use a standard buy to let mortgage when renting to a family member?
What is a regulated buy to let mortgage?
How We Work
1: We contact you and take down your details, income outgoings, name, address etc.
2: We will research the whole market and email you a detailed quote as well as a list of documents to proceed.
3: You upload the documents and information needed via our channel our online portal.
Can you Rent to a Family Member with a BTL Mortgage?
It may seem surprising but if you are looking to buy a property to rent to your family member or you already own a buy-to-let property, it might be more complicated than renting to a stranger. If you are looking to rent a property to your family member, then a standard buy to let (BTL) mortgage is likely not suitable for this purpose unless you intend to rent the property at the current market rate for rentals. You will be required to have a regulated buy-to-let product which is also known as a family buy-to-let mortgage.
We discuss this in more detail in this article.
Why can’t I use a standard buy to let mortgage when renting to a family member?
There are a number of reasons why someone would want to find a mortgage product that is suitable for renting the property to their family member. Parents may wish to buy an investment property when their child goes to university for them to live in and collect rent. Or perhaps someone prefers to rent to a family member who they know and trust rather than a stranger.
Generally, in these circumstances when you are renting to a family member, you may decide to charge them less than the current rental market value. As buy to let mortgages are considered a business, they are commercial transactions so therefore not regulated by the Financial Conduct Authority (FCA). Mortgage lenders will need to be satisfied that they are lending on buy to let property for a specific rental income that will cover the rent plus a fraction more to cover other costs. Buy to let lenders typically require borrowers to provide proof of rental income being 125%- 145% more than the monthly mortgage costs. This means the borrower would be obliged to charge the family member rent at the current market value or to try and find an alternative mortgage product so a family or regulated buy to let product is more fitting for this purpose.
What is a regulated buy to let mortgage?
A regulated buy to let mortgage (also known as a family mortgage) allows you to rent a property to a close relative and they differ from a standard buy to let as they are regulated by the Financial Conduct Authority (FCA) which means they are under stricter guidelines, similar to a standard residential mortgage.
The reason why it is usually easier to obtain a standard buy to let mortgage than a family mortgage is that from a lender’s point of view, the relationship of renting to a family member and the emotional attachments involved is deemed as a riskier investment for the lender. Regulated buy to let mortgages are under strict regulatory requirements so not all lenders will offer this type of mortgage and those who do offer this product may require certain criteria from a borrower and this can vary from lender to lender.
Generally, interest rates for a regulated buy to let mortgage is not as competitive as other types of mortgage products and tend to be higher, this can have an impact on your affordability and lower the amount lenders are willing to loan you.
If your relative occupies less than 40% of the whole property, you may be able to use a standard non-regulated buy to let mortgage. If you are renting to extended family such as cousins, lenders may consider that relation is distant enough to use a traditional buy to let mortgage.
If your family member no longer wishes to rent your property moves out, you will be required to inform your lender and provide them of your next intentions for the property. If you intend to keep the property and rent it out again but to non-family members, the lender will most likely move you onto a standard buy to let mortgage product.
Not providing your lender with correct information means you are breaking the terms of your mortgage and committing mortgage fraud which could possibly incur penalties or the lender may demand immediate payment of the full outstanding loan.
Landlord responsibilities
Just because you are renting your property to your own child or a close relative, it doesn’t mean you are not under the same obligations as any other landlords as the negative consequences of rent arrearsArrears on a borrower's rental payments that may affect thei... will mean you have to bear the financial burden and face the possibility of losing your property and having it repossessed.
It is advisable to draw up the tenancy agreement and you must register their deposit if one is taken. Take out appropriate insurance and ensure you carry out safety checks as per regulations. If your property is considered a house in multiple occupancies (HMO), you will be required to get a license.
Next steps
Regulated buy to let mortgage lenders are limited in the mortgage market and if you don’t have much experience, then it might be a good idea to seek professional advice. A mortgage broker has access to the whole market of lenders and products on and off the high street, including specialist lenders, so they can tailor their search to suit your needs and circumstances and independently find the deal best for you.
How We Work
1: We contact you and take down your details, income outgoings, name, address etc.
2: We will research the whole market and email you a detailed quote as well as a list of documents to proceed.
3: You upload the documents and information needed via our channel our online portal.
FAQs
Can I rent to a family member with a BTL mortgage?
Yes, it is possible to rent out a property to a family member with a BTL mortgage. However, there are regulations and guidelines that need to be followed and potential legal and financial implications to consider.
What are the rules and regulations surrounding BTL mortgages?
BTL mortgages are subject to affordability tests, minimum deposit requirements, and other regulations to ensure that landlords can afford to make the mortgage payments and that the rental market operates fairly and transparently.
What are the legal and financial implications of renting to a family member with a BTL mortgage?
Landlords should be aware of potential tax implications, inheritance issues, and potential disputes that may arise when renting to a family member. It is important to seek professional advice and to establish clear communication and boundaries to avoid any misunderstandings.
How can I manage a rental property when renting to a family member?
Landlords should establish clear communication and boundaries with the family member, create a tenancy agreement, and maintain a professional relationship to ensure a successful and compliant rental arrangement.
What should I consider before renting to a family member with a BTL mortgage?
A: Before renting to a family member, landlords should consider the potential legal and financial implications, seek professional advice, and ensure compliance with regulations and guidelines surrounding BTL mortgages and rental properties.
What are the benefits of renting to a family member with a BTL mortgage?
Renting to a family member can offer benefits such as a reliable and trustworthy tenant, a stable income stream, and the potential for the property to be kept in the family. However, it is important to weigh these benefits against the potential legal and financial implications.
About The Author
Damian is an experienced mortgage broker, founder of NeedingAdvice.co.uk Ltd and company director. With over a decade working as a mortgage broker he has a strong understanding of hard to place mortgage cases. With hundreds of 5 star client reviews. hundreds of repeat clients his work speaks for himself.
He started NeedingAdvice.co.uk as a one man band with the philosophy of putting clients needs ahead of his own. This ethos of offering excellent customer service has helped the business grow over the years. He gets satisfaction on getting cases pushed through to offer stage where other mortgage broker and companies have failed.
Throughout his time as an adviser he has carved out a niche area of advice helping clients with their business protection requirements too. Having helped hundreds of client with Relevant Life Policies, Shareholder Protection Insurance, Keyperson Policies and other important protection requirements of large to small businesses.
At home he is a family man and likes to spend his time with his four children and wife Lisa. He enjoys going on holidays spending time with friends and going for walks.
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