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Family Buy To Let Mortgages

Wondering whether a family buy-to-let mortgage is right for you? You can find out by going through this informative guide on the topic.
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If you intend to purchase property to let it out to a family member, a family buy-to-let mortgage might be the best solution, this is primarily termed as a regulated buy-to-let mortgage. 

A family buy-to-let mortgage offers certain advantages over a regular buy-to-let mortgage, such as allowing you to rent out the entire property to a family member. However, the risk involved with such mortgages could be greater as well.

That is why it is very important to learn all about family buy to let mortgages before applying for one. And this guide aims to help you do that. 

What Is Family Buy To Let Mortgages?

Family buy to let mortgages, commonly known as a regulated buy to let mortgages, is a type of loan designed to allow rental properties to be let out to family members. It is known as a regulated mortgage since conventional buy-to-let mortgages are not regulated typically. 

Family Buy-To-Let Mortgage 1

Family buy-to-let mortgages are regulated by the Financial Conduct Authority (FCA) and are special offerings with very stringent guidelines. The rules and requirements for such mortgages are stricter because the risk involved for the lender is much higher. 

This is because property owners are likely to treat family members differently from other tenants and may charge a lower rent or offer flexible payment schedules.

Also, usually a family buy-to-let mortgage is only allowed for immediate family members, like parents, siblings, or children. Some lenders may limit it to dependent relatives for example. 

Situations Where A Family Buy-To-Let Mortgage May Be Needed

There are several situations where a family buy-to-let mortgage may be the most suitable type of loan. 

1. Letting Out To A Child

Sometimes parents may want to purchase property and rent it out to their child, who may be enrolled at a university or starting their first job

2. For Parents Or Grandparents

You may want your parents or grandparents to move into a recently purchased or to-be-purchased property. 

3. Living In The Same Property

In some cases, investors may want to reside in the same property being let out to tenants or occupy it for certain periods. Based on the lenders criteria some may class this as a second residential, whereas most will class this as a regulated buy to let. 

4. Letting Out To A Sibling 

A family buy-to-let property may be let out to a sibling and their partner or friend. 

Eligibility Criteria For A Family Buy-To-Let Mortgage

As with standard buy-to-let mortgages, you need to meet the eligibility requirements before a lender is willing to provide a regulated buy-to-let mortgage. While the expected rental income is an important factor, there are some additional requirements as well.

1. Personal name applications

A family buy-to-let mortgage is offered in personal names rather than LTD company applications in which unregulated buy-to-lets could be.  

2. Age Limits

The minimum and maximum ages of the applicant are usually between 25 and 75

3. Minimum income

You should have a minimum income of at least £25,000 a year for most lenders. 

4. Deposit Requirements

As with unregulated buy-to-let mortgages, the minimum deposit is normally around  25% of the property value and can go up to 40%. A specialised broker may potentially be able to find you a lower deposit product in rare circumstances. . 

5. Portfolio Limit

Lenders may also limit the number of properties you have in your portfolio.  

Keep in mind that the eligibility requirements for a buy-to-let mortgage can vary from one lender to the next. You can take the help of a specialist mortgage broker to find out the best rates before deciding on a lender. 

How Much Can You Borrow With A Family Buy-To-Let Mortgage?

Generally, with family buy-to-let mortgages, you may not get very favourable rates, and the number of lenders offering such mortgages is limited.

Since the rental income, in this case, is not the most important factor as it is with unregulated buy-to-let mortgages, the amount you can borrow will depend on other factors.

Often lenders will want to ensure the applicants meet the borrowing within personal affordability and not use any of the rent in the assessment due its uncertainty. 

These factors include gross annual income, age, and the various requirements that the lender has put in place.

Lenders need to be assured that you can repay the loan without relying on rental income from the property and will determine the amount offered accordingly.

Apart from that, they have to meet their own guidelines while offering a family buy-to-let mortgage.

While some lenders may require you to earn £30,000 a year or more to be eligible for a regulated buy-to-let mortgage, others may have more flexible requirements. 

Getting A Family Buy-To-Let Mortgage

1. Check Your Affordability And Credit Score

Getting a family buy-to-let mortgage is similar to getting a regular buy-to-let mortgage but requires more preparation for the stricter requirements.

The most important among these is a good credit score, and proper documentation will be needed as proof of that. 

Also, both the lender and the concerned family member should be aware of the arrangement. 

2. Readying The Documents

Various documents, such as those serving as evidence of your address and income, should be kept ready. 

3. Consulting A Broker

Since few lenders offer family buy-to-let mortgages, it is essential to get a good idea regarding the available options to avoid higher fees and interest rates.

For that purpose, consulting a specialist mortgage broker can be very helpful and can help you find the best deals. 

Family Buy-To-Let Mortgage Vs. Unregulated Buy-To-Let Mortgage

A family buy-to-let mortgage is similar to an unregulated one in many respects, but there are certain differences between the two.

Regulated vs Unregulated Buy-To-Let Mortgage

Firstly, a family buy-to-let mortgage is regulated by the FCA, while a typical regular buy-to-let mortgage is not. 

Also, the loan amount available for a family buy-to-let mortgage depends mainly on your personal income and expenditure, while it depends primarily on the rental income for a regular buy-to-let mortgage.

Another major difference is that a family member cannot occupy a property if it was purchased through an unregulated buy-to-let mortgage.

In contrast, they can rent the entire property in case of a family buy-to-let mortgage, and the lender will be made aware of that during the mortgage application. 

Finally, an investor can occupy the property purchased through a family buy-to-let mortgage but not in one bought through a standard buy-to-let mortgage.

Things To Consider When Getting A Family Buy-To-Let Mortgage

A few things need to be considered when you’re planning to get a family buy-to-let mortgage. 

1. Tax Considerations

When you purchase property through a family buy-to-let mortgage, it will more than likely be a second property purchase, which attracts a 3% stamp duty surcharge in most cases. In addition, you may need to pay Capital Gains Tax when selling off the property. 

Apart from that, keep in mind that the tax rules have changed, and you can no longer get any exemption on mortgage interest payments in most cases. 

2. Landlord Responsibilities

Even in the case of a family buy-to-let mortgage, a landlord will have many responsibilities. 

FAQs

1. How is the income for self-employed people assessed for the purpose of a family buy-to-let mortgage?

When lenders offer a regulated buy-to-let mortgage to self-employed people, they assess their income typically with SA302 tax calculations and corresponding tax year overviews or through LTD company accounts.  

2. What happens to a family buy-to-let property when your family member moves out?

You could speak with your existing lender and look to re mortgage to a conventional buy-to-let mortgage when your family member moves out. Alternatively through a mortgage broker or yourself if you have the confidence you may look to re mortgage to a new lender offering a standard buy to let mortgage if it is now going to be let to unrelated tenants. 

3. Can you let out a family buy-to-let property to aunts, uncles, and cousins?  

This will vary between lenders, always make your broker (if using one) and lender aware of your intentions beforehand and as part of the mortgage application. 

4. What is the maximum loan to value (LTV) for a family buy-to-let mortgage?

The maximum LTV usually for a regulated buy-to-let mortgage is 75%, and larger deposits will provide you with better rates. 

Conclusion

A family buy-to-let mortgage can be very handy in certain situations, such as when you want to provide a close family member with living space at affordable rates. And properties purchased for this purpose can even be used for your own occupancy requirements of the property.

However, getting such a mortgage is much more difficult when compared to a conventional buy-to-let mortgage due to more stringent requirements. 

That is why you will want to consider everything before making a decision. 

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

CeMAP & CERER Qualified Mortgage Adviser

I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.

Mortgage & Protection Advisor | 03337892035

I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.

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