Buy To Let For Family Members
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Buy to lets for family members
In recent years, more people are buying properties for their family members to live in. High house prices, increased rents and mortgage interest rates, and the high cost of living make it hard for people to get and stay on the property ladder.
Parents often buy these properties for their children, or adult children buy for their siblings, parents, or grandparents. Unlike ‘normal’ buy to lets, these properties are intended for family members, not unrelated tenants.
You must be clear about your intentions for the property. If you don’t mention that you will rent it to a relative, it could be considered mortgage fraud.
Can I rent out a property to a family member?
Yes, you can, as long as you have the right type of mortgage.
Renting to a relative needs a special type of mortgage called a regulated buy to let. This offers greater protections than a ‘normal’ 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 only for houses or flats rented to paying tenants who are not related to you. People who get these mortgages aim to become landlords and make money from property.
This type of mortgage is viewed as a business venture or investment, and isn’t covered by the Financial Conduct Authority’s (FCA) consumer regulations, which protect ordinary people rather than businesses.
If you want to buy a property solely to rent it to a family member, it isn’t viewed as an investment. The belief is you are helping a relative, not trying to profit, even if you make money from it. This type of mortgage has greater protection for you and is governed by the FCA’s regulations, which protect against mis-selling and poor advice.
Why The Mortgage Store Chorley?
Exclusive rates you won’t get directly from lenders
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Ongoing rate monitoring until completion as standard
Do you have a question?
Is it hard to get a mortgage on a buy to let if I’m going to rent to family?
Renting to an immediate family member may be convenient but it does come with its own risks.
Relatives might expect lower rent, which could make lenders worry about whether you can afford the mortgage if you aren’t getting market rates. Your relative might also pay rent late or not at all, believing you won’t kick them out, and it could be difficult if you need to evict them.
These risks can make financing this type of transaction tricky. Most mainstream lenders avoid offering finance in these cases, but some specialist lenders can offer regulated buy to let mortgages.
Can I buy a house for my parents and let them live in it?
Yes, absolutely. If your parents will be paying rent, this is exactly what a regulated buy to let mortgage is intended for.
Do I have to pay Stamp Duty if I buy a house to rent to relatives?
If you own a property already, Stamp Duty will be payable with a 3% surcharge.
If you don’t own a property, the level of Stamp Duty payable will depend on the thresholds at the point of sale.
Do I have to pay tax on rental income if I rent to family?
Yes. You need to declare rental income to HMRC on a yearly tax return. You could be liable for income tax and National Insurance on any profit.
How do HMRC know if I rent a property out?
HMRC can cross-reference information from various databases. For example, they can check Land Registry to see who owns what, and find out what level of Stamp Duty was paid when it was bought. They can also view the electoral register to see who lives there.
You could face penalties or prosecution if HMRC finds out you owe them money. It’s best to be honest and declare your income properly each year.
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What deposit is required on a buy to let mortgage for family?
A buy to let mortgage is riskier for lenders than a residential mortgage. Most people prioritise paying the mortgage on their own home because it keeps a roof over their heads. Lenders believe that landlords might not care as much about a rental property since it isn’t their home.
Because of this, a larger deposit is needed for a buy to let mortgage. Generally the minimum deposit required is 25% of the property’s value. However, each lender has their own criteria, so deposit levels may vary. For instance, a larger deposit might be required if you have adverse credit.
How much could I borrow on a regulated buy to let mortgage?
Lenders see regulated buy to let mortgages high risk, even more so than standard buy to lets.
Affordability is usually determined by assessing your income and expenditure, similar to a residential mortgage.
This is due to the risk that your relative might not pay rent or may pay a reduced rate. Even if this happens, you still need to afford the monthly mortgage payments.
If you already have a mortgage on your own home, you must able to afford both that mortgage and any new mortgage you take out.
Can I change to a ‘normal’ buy to let mortgage in future?
If your relative moves out, you should consider switching to an unregulated buy to let mortgage if you want to keep the property and rent it out to a tenant.
A new mortgage will be subject to lender criteria, credit checks, and affordability checks.
There are usually more options available in the unregulated buy to let market.
How can The Mortgage Store Chorley help with regulated buy to let mortgages?
We possess a wealth of expertise and industry knowledge that can be invaluable in navigating the complex landscape of regulated buy to let mortgages.
With most high street lenders shunning this type of deal, finding a lender that’s right for you can be difficult and time-consuming. We have good relationships with lenders that offer these mortgages, and we can help find the right one for you.
