Regulated Family Buy-to-Let Mortgages

Thinking about a family buy to let mortgage? Unsure if you can rent your BTL to family? Our guide shows you how to get one of these regulated mortgages!

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 16, 2021

Renting to a family member or relative who you know and trust is an attractive option for many prospective landlords, but things do get more complicated from a mortgage standpoint. You won’t be able to use a standard buy to let mortgage and that’s where a specialist family or so-called regulated mortgage comes into the picture.

In this article, we’ll guide you through what a family buy-to-let (BTL) mortgage is, how to get one, and what additional eligibility requirements are attached with this type of borrowing.

We’ll cover…

Why would you need a regulated BTL mortgage?

If you want to rent a property to a family member or relative, you’ll need to apply for a specialist mortgage called a family or regulated mortgage.

Lenders have stricter requirements for landlords renting to families because it’s more likely that you’ll charge your family less than the standard rate, or be more forgiving if they run into financial difficulty and have trouble paying the rent on time. This means that lenders see it as a riskier option and have set up a regulated BTL mortgage to ensure that their affordability criteria are met.

As the name suggests, this type of mortgage is only available if you’re renting to immediate family – children, parents, siblings or grandparents. If you want to rent your property to wider family – cousins etc. you can use a standard buy-to-let arrangement.

Who regulates family buy-to-let mortgages?

They are regulated by the Financial Conduct Authority (FCA), same as standard residential mortgages, but only if more than 40% of the property is being rented by a close relative. If it’s less than 40% you may be able to take out a standard BTL mortgage.

You will likely need a bigger deposit, and most lenders tend to offer borrowing on a capital and repayment basis, rather than interest-only.

With family BTLs, your personal income plays a much bigger part in affordability assessments, instead of the overall rental income.

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How to get a family buy-to-let mortgage

Here are the steps to take to make sure your application gets off to the best possible start…

Step 1: Check your credit score and affordability

The process for getting a family BTL mortgage is similar to applying for a standard buy-to-let, but you’ll need to inform the lender of your plans and prepare for a more stringent affordability assessment. This makes it more important than ever to ensure your credit score is good and collect all proof of income and assets.

The process isn’t any different to applying for a standard buy-to-let mortgage, but you will need to be upfront with the mortgage lender about your plans for the property. If you plan on letting it to family members, they’ll need to know about this.

You can download your credit reports from our dedicated hub. Don’t forget to challenge any inaccuracies and have outdated information removed.

Step 2: Prepare your paperwork

You’ll need the standard documents such as proof of income and proof of address. If you already have ownership of property, then you’ll need to bring papers evidencing ownership as well as for the property you want to buy.

Use our mortgage application guide as a reference to find out everything you’ll need.

Step 3: Speak to a family buy-to-let mortgage broker

Family BTL mortgages are a specialist product, this means that not many lenders offer them and if you’re not careful you may be slapped with higher interest rates than necessary. That’s why you’ll need to get help from a specialist broker who has access to all suitable mortgage offers to take you directly to your best deal.

We work with brokers who specialise in family buy-to-let mortgages and arrange them every day. They have the knowledge, experience and lender contacts you need to boost your chances of landing the best deal on the market.

Contact us on 0808 189 0463 or make an enquiry and we’ll match you with your ideal broker for free.

Eligibility criteria

The eligibility criteria for family buy-to-let mortgages is stricter than they would be for a standard BTL.

Some of the criteria you could be face with include:

Bullet Tick You must be over 25 years old and no older than 75 years
Bullet Tick Minimum income of £25,000 a year
Bullet Tick 25 to 40% deposit
Bullet Tick 100% of the deposit must be paid for by the applicant (no gifted deposits accepted)
Bullet Tick Standard property (in terms of construction)
Bullet Tick A cap on the number of properties already in your portfolio (this could vary from 3 to 10)
Bullet Tick Rent must cover at least 125% of the mortgage
Bullet Tick London properties must be valued at over £300,000

Bear in mind that the eligibility criteria does vary a lot from one provider to the next, so even if you don’t meet all the requirements, there could well still be a lender out there for you.

How much deposit do you need?

Deposit size for regulated mortgages will be larger than requirements for a standard BTL. Many lenders will require a minimum 25% deposit, but this could also be as much as 40% depending on the provider and other factors impacting your affordability.

Can you switch from unregulated to regulated and vice versa?

Yes you can! If you’re renting out the property to tenants but want to rent to family members instead, you can switch from an unregulated to a regulated BTL mortgage. The same applies if you’re renting to family members and they want to move out.

It’s best to use a broker if this situation arises, they’ll be able to identify the best lenders for this type of borrowing, saving you a lot of time and, potentially, some money too.

Which lenders offer these types of mortgages?

Family buy-to-let mortgages are a specialist mortgage product, which means they’re not usually offered by high street BTL mortgage lenders and choice is more limited. If you’re not careful, this can mean you’ll end up paying a higher rate of interest than you would for a standard BTL mortgage.

Getting the right deal is about knowing the market and understanding how to find specialist lenders who are the right fit for your needs. A mortgage broker who specialises in buy to let can help you with this and give you peace of mind that you’re getting the best rate possible.

Are there any tax implications to consider?

Yes there are. The biggest one being a 3% stamp duty surcharge which applies to all investment properties and you’ll need to calculate how this works out as a percentage of the total property value and budget for it.

In the long-term there could also be inheritance tax implications and you may not be able to claim back all expenses unless you can prove the property was purchased solely for business reasons.

Get matched with a family buy-to-let mortgage broker

Family buy-to-let mortgages are a good option to consider if you’re wanting to rent out a property solely to your close relatives, but finding the right lender to help can be difficult and quite time consuming.

At Online Money Advisor, we specialise in helping people find the best broker to guide them to the best solutions for their needs. Contact us on 0808 189 0463 or make an enquiry and we’ll connect you to an advisor who specialises in family buy-to-let mortgages.

FAQ's

Do my tenants need to sign a formal agreement even though they’re family?

Yes. Even though you’re letting the property to a family member, it’s best to keep the tenancy agreement formalised and set in stone with a regular rental contract. This will help to take any pressure off of the landlord-tenant relationship and keep things clear and simple. You’ll also need to get the right insurance and place any deposit paid in a deposit protection scheme.

What if I want to sell my property to family?

The family member who wants to buy the property from you would have to apply for a standard residential mortgage if they plan on living in the property.

If you want to offer a discount on the price some lenders may be able to add the sum of the discount to count towards the deposit put down for the property – that way you can help your family member get a better rate on the mortgage or purchase with a lower deposit.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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