Renting your buy-to-let to a family member works for many, yet has special rules. Have you thought about leasing your property to someone you know? We’ll look into what you need to know. This includes how to handle the special terms of family renting.
Key Takeaways
- Regulated buy-to-let mortgages typically require a minimum deposit of 25% of the purchase price.
- Rent for properties rented to family members should be at or near fair market rent for similar properties in the area.
- Rental income should cover 125% – 145% of the proposed mortgage payments for buy-to-let properties.
- Lenders consider the landlord’s personal income to assess affordability for regulated buy-to-lets for family members.
- Regulated buy-to-let mortgages are designed for immediate family members and are regulated by the FCA.
What is a Family Buy to Let Mortgage?
A family buy to let mortgage is a product for landlords. It lets them rent their place to family. They are different because they have more rules. They come under strict watch by the FCA.
Understanding Regulated BTL Mortgages
These buy to let mortgages have different rules. They look at the landlord’s own money and if they can pay the mortgage without the rent. Usually, they ask for a bigger deposit, about 25%. Also, you might have to pay back some of the loan and the interest each month. You can’t just pay off the interest.
Lending Criteria and Requirements
To get a family buy to let mortgage, you have to meet certain conditions. This includes the amount of deposit, how much the house is worth or its loan-to-value, the rent you’re likely to get, your own financial situation, credit score, and how much you earn.
Some basics include being between 25 and 75 years old. Plus, you have to earn at least £25,000 a year, without counting the rent money. This is to make sure you can pay even if the house is empty.
| Criteria | Typical Requirement |
|---|---|
| Deposit | Minimum 25% |
| Loan-to-Value (LTV) | Maximum 75% |
| Minimum Age | 25 years old |
| Maximum Age | 75 years old |
| Minimum Income | £25,000 per annum (excluding rental income) |
If you’re after a family mortgage, you must prove you can handle the cost. It’s very much like getting a home loan. This is a key point for landlords, especially with recent rules on tax changes for mortgage interest.
Can I Rent My Buy to Let to Family Members?
Renting your buy to let property to family is a good choice. But, the mortgage you pick changes with how close you are. For a close relative like a parent or sibling, choose a regulated family buy to let mortgage. For cousins, aunts, or uncles, a standard buy to let mortgage might work.
Renting to Close Relatives
Renting to close family? Get a regulated family buy to let mortgage. These are for letting to those really near. You’ll need a bigger deposit, about 25%. Also, your personal income matters more than how much the property earns.
Renting to Extended Family
For cousins and more distant relatives, a standard buy to let mortgage could suit. It’s more open and not as strict as the family ones. But, be sure to say how you’re related to the tenant when you apply. This is to meet the lender’s rules.
Really get to know what the different mortgages need. This makes sure renting to family goes smoothly.
Can I rent my buy to let to family?
Disclosing Rental Information
You’re allowed to rent your property to a family member. But you must tell your mortgage lender first. If you don’t share this info, you could break your mortgage terms. This error might lead to the mortgage lender asking for the full loan back. That could be a big financial problem for you.
Usually, standard buy to let mortgages don’t allow close relatives as tenants. This is because it’s seen as a riskier deal. It would need a deeper look into your ability to afford the loan by the lender. You might need to put down a 25% deposit for such mortgages. Also, these types of loans are watched over by the Financial Conduct Authority.
Renting to family may also mean you pay a 3% stamp duty on top of normal rates. And you can’t get tax relief at your usual tax rate anymore. Now, you only get a flat 20% tax credit. This might make it harder for you to claim expenses when renting to family at lower rates.
| Statistic | Value |
|---|---|
| Deposit required for family buy-to-let mortgages | Around 25%, larger than standard buy-to-let loans |
| Regulation of family buy-to-let mortgages | Regulated by the Financial Conduct Authority |
| Stamp duty surcharge for renting to family members | 3% as a second property |
| Tax relief for landlords renting to family members | Flat 20% tax credit, no longer at the landlord’s rate of tax |
If you’re thinking of a family buy-to-let, be ready for more checks on what you can afford. The 3% stamp duty extra cost is something you need to plan for. Helping your kids buy a property via student or buy for uni mortgages could be a smarter move. This is because it’s less likely to impact your taxes in a bad way than a family buy-to-let would.
Do I still need a tenancy agreement?
Yes, you should have a tenancy agreement in place, even with family members. This document sets out the rent, property rules, and what each person needs to do. It’s key for making sure things run smoothly.
Things might feel relaxed when it’s family. But, keeping it professional is a must. A tenancy agreement makes everything clear. It states the rent, how long the rental is, and any extra rules or what’s expected. This keeps both sides safe and legal.
Even if no rent is being paid, or if it’s low, a written agreement is crucial. It spells out the rights and duties of both sides. Without it, problems could lead to legal trouble later.
Handling the deposit correctly is also a must, according to the law. The deposit should be put in a special scheme, no matter if your tenant is a relative or not. This helps avoid arguments about the deposit later on.
A tenancy agreement does more than just set rules. It keeps things fair and clear for everyone. Plus, it makes sure the rental is trouble-free for all.
| Requirement | Details |
|---|---|
| Tenancy Agreement | A legally binding document outlining the rental terms, including rent amount, property rules, and responsibilities of both landlord and tenant. |
| Deposit Protection | Landlords must protect the tenant’s deposit in a government-approved tenancy deposit scheme. |
| Housing Regulations | The property must adhere to 29 regulations under the Housing Health and Safety Rating System for private rentals. |
| Energy Efficiency | An Energy Performance Certificate (EPC) must be provided for the property’s energy efficiency rating. |
| Landlord Insurance | Landlord insurance is advised even when renting to family members to cover potential issues like rent non-payment. |
Meeting all these rules makes every rental strong and right, even if it’s with family. A formal agreement is vital. It looks after both landlord and tenant, family or not.
Landlord Responsibilities When Renting to Family
If you rent your property to a family member, your job as a landlord stays the same. You still need to meet certain legal requirements. This is true no matter who your tenants are.
You must give your family tenant a tenancy agreement. This document lays out the rental’s details and the rights and duties of each side. Not having this agreement could cause problems later on.
Also, you need to safeguard your tenant’s deposit in a government-backed scheme. The Tenant Fees Act 2019 mandates this. It makes sure the deposit can go back to the tenant if everything’s okay.
Furthermore, your rented place must follow health and safety laws. You need a Gas Safety Certificate and an Energy Performance Certificate. The house or flat must also be safe and without danger to the tenant’s health.
Taking out landlord insurance is a good idea. It can help if the property is damaged or the rent isn’t paid, even when it’s family you’re renting to.
Remember, the rent you get from your family tenant is taxed like any other income. This means you have to report it and pay the taxes owed.
Though renting to family sounds less formal, your duties are the same. By sticking to these rules, you can have a trouble-free tenancy, family or not.
| Landlord Responsibility | Requirement |
|---|---|
| Tenancy Agreement | Mandatory, even when renting to family |
| Deposit Protection | Deposit must be protected in a government-backed scheme |
| Health and Safety Compliance | Gas Safety Certificate, EPC, and property hazard-free |
| Landlord Insurance | Recommended to cover potential issues and risks |
| Rental Income Tax | Rental income must be declared and appropriate taxes paid |
Conclusion
Renting your buy-to-let property to a family member is worth considering. But, you’ll likely need a special mortgage for this. It comes with stricter rules than usual mortgages. You might also face extra taxes, like the 3% stamp duty surcharge.
Being a landlord means you must follow the law. This includes giving a tenancy agreement, protecting the deposit, and keeping the home safe. Also, it’s really important to tell your mortgage lender about your family member tenant. This is to make sure you’re following your mortgage correctly and to avoid trouble.
If you rent to close or extended family, don’t take things lightly. Learn what’s involved in letting family stay in your buy-to-let. This way, you can choose the best path that meets both your money needs and family ties.
