It’s a noble thing to want to help a family member out by letting them live in your buy to let property. Unfortunately, your lender might not see it this way. In this article, we will look at some of the steps you can take to rent to a family member without worrying about your mortgage provider.
What is the issue with renting to a family?
Buy to let properties are essentially a business, and they need to be operated as such. The issue a lender will have with you renting to a family member is that you are likely to offer them a below-market rent. You are also much less likely to chase missing rental payments.
When making a decision on a buy-to-let mortgage, lenders will look at the market value of the property to help them determine if the mortgage is affordable. Remember that many buy-to-let mortgages are secured without looking at the rest of your finances. Lenders make a decision based on the rental income more than covering the mortgage payments. They don’t have any way to accommodate your charitable adjustments to rent.
This isn’t the only reason for lenders to be wary. The Financial Services Conduct Authority also imposes consumer safeguards on any property that is used at least 40% by a family member. This means that the lender and broker have to justify their recommendations.
A new wave of checks that came into play in April 2014 also increased the bureaucracy for lenders. This led to many prominent figures leaving the family lettings market due to added pressure. This included BM Solutions, which is a prominent figure in the buy-to-let market. The new difficulties and checks required for renting to family members make this route unviable for many lenders.
What solution is available?
We aren’t called Niche Mortgage Info by accident. We can facilitate an introduction to brokers with access to lenders still offering a buy to let mortgage that will enable you to rent to family members. This isn’t about finding a loophole; rather, it’s about finding a lender that actively allows lets to close family members.
However, it’s important to note that the solution isn’t as simple as you might like. In essence, you would be securing a second residential mortgage that allows rentals. This means that affordability would be based on your income and not the potential rental yield. Another point to note is that many lenders will require the mortgage to be on a repayment basis and not interest only.
Below we can explore some of the criteria you can expect to face when looking for this type of mortgage. Note that this is a broad picture of the sector and should not be taken as a guarantee of acceptance.
Criteria for buy to let family rental
- Minimum income of £25,000, for at least one applicant, not including pension or benefits.
- 40% deposit
- Applicant must be an owner-occupier, but the property can still be mortgaged.
- No gifted deposits accepted.
- The property must be standard construction.
- Must be able to afford both mortgage payments.
- Mortgage terms up to 75 years of age.
- London and M25 properties must be valued at over £300,000.
- Portfolio with no more than 10 properties.
- Rent must cover 125% of the mortgage payments
The section most likely to trip up applicants is the no gifted deposits. This is because the person planning to rent the property must not be the one who has given you the deposit. To avoid this entirely, lenders ask for you to provide the deposit.
If you are looking to purchase a property for a family member to live in, get in touch with Niche Mortgage Info today. We can help to guide you through the process and put you in touch with brokers who can help you secure the mortgage you need.