I want to help a close relative by letting my buy-to-let to them. Can I get a Buy to let mortgage to rent to a family member?
Buy to lets are effectively businesses so mortgage lenders need to ensure they are run on a commercial basis. There is a temptation that letting to a relative would be under the market value rent. This poses a big problem to the lender as their underwriting assessment is determined by and large by the expected rental figure provided by the valuer, and there is no way of factoring in such charitable adjustments. This has reluctantly led to few mortgage lenders being active in the family Buy to let mortgage to rent to a family member sector.
As well as the lender; the regulator (Financial Services Conduct Authority) also imposes additional consumer safeguards for any property that has at least 40% usage by a close relative. What this means is the lender and mortgage broker have to justify their recommendations it terms of suitability and affordability. This has been further exasperated by the introduction of a new wave of checks they are obliged to run following increased regulation in April 2014. This added bureaucracy has seen a number of the already few lenders exit the market this year, most notably BM Solutions a very large buy-to-let player, and ironically part of the Lloyds Banking Group which is predominately government owned – which highlights the difficulties the new rule set presents to lenders that wish to trade in the family let market.
Our solution: Buy to let mortgage to rent to a family member
As you have come to expect from Niche Advice all is not lost. We still have access to 2 lenders that provide ‘regulated’ buy to let mortgages, the type needed to allow lets’ to close family. Really treat this type of mortgage as almost a second residential mortgage. So the key driver is the applicants affordability.
That’s right if you are looking to rent out a mortgaged property to a son, daughter, brother, sister, mother or father then your search is over. Don’t get me wrong this is a complex area and the cases need to be presented to the lenders in the right way, and so not be tempted on your own, as if you waste a chance by doing this wrong the finite number of lenders could mean there is no plan B for your circumstances.
Basically this type of mortgages are almost seen as a second residential mortgages so the lenders would want to see affordability across both properties regardless of the rental income. This is possibly the most important point and one that many of the enquirers we receive fall down on Game changer is potentially the fact that they insist on all mortgages to be repayment and not interest only.
Broad guidelines on suitability for a ‘regulated’ buy to lets
Examples of some of the criteria:
• Minimum income of 25,000 for at least one applicant (excluding state pension and other benefits)
• 60% loan to Value so you will need 40% deposit
• Applicant must be an owner Occupier (can be Mortgaged)
• 100% of the deposit must come from the Applicant (no gifted deposits)
• Standard property construction
• Good level of affordability to maintain mortgage
• Mortgage term up to the applicants age of 75 Years
• London & M25 properties must have a value of over £300,000
• No more than 10 properties within their portfolio
• Rental coverage of 125% of the mortgage payment
No element of gifted deposits especially from the tenants – Basically your family member can not gift you the money to purchase the property then they can rent of you.
So if you want to purchase a property to let out to a family member then we can certainly help but regulated buy to let mortgages are very complex and the right level of care and specifically advice needs to be given to ensure everybody’s protected.
Niche advice of fully regulated by the Financial Conduct Authority and specialist within the buy to let mortgage market.
For more information about Buy to let mortgage to rent to a family member please contact us on T: (020) 7993 2044 or alternatively complete the online enquiry form.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.