Also known as a family buy-to-let mortgage, this is the mortgage you need if you want to rent out your whole property to a member of your family.
Renting to a relative is a common choice for many owners who want the confidence that their property is in safe hands. But there can be complications when it comes to financing a home that you want to let out to family, and you’re likely to need a regulated mortgage instead of a standard buy-to-let mortgage. Let’s find out why and how you can go about getting one.
What is a regulated buy-to-let mortgage?
This is a specialist mortgage that allows you to rent out the entirety of your property (or anything above 40% of it) to a relative. It also allows you to live in it alongside them.
Unfortunately, not many lenders offer these types of loans, and the requirements are often stricter. This is because lenders know that families might not charge each other as much in rent as they would for a tenant they don’t know, and they might be more lenient with missed payments, which could cause trouble for the mortgage repayments. In short, it’s a riskier loan.
Why do you need a regulated buy-to-let mortgage to rent to a family member?
While it’s possible to rent to a family member under a standard buy-to-let mortgage, they can only occupy less than 40% of the property with it – like a room – with other tenants living in the rest of the property.
The rule is that if they occupy more than 40%, you’ll need to apply for a regulated mortgage.
What are the differences between a regulated and a standard buy-to-let mortgage?
We’ve covered the main difference – with a standard buy-to-let, you’re not planning to live in it yourself or rent it out to family. With a regulated buy-to-let, you are. Here are a few more differences:
Regulated buy-to-let:
Regulated by the FCA
Often requires a bigger deposit
Bases the loan amount on your personal income
Allows a relative to rent the whole property
Allows the borrower to live in the property alongside another paying tenant
Standard buy-to-let:
Not regulated by the FCA
Usually requires a deposit of around 25%
Bases the loan amount on perceived rental income over personal income
Only allows a relative to rent up to 40% of the property
Does not allow the borrower to live in the property
Why would you need a regulated buy-to-let mortgage?
There are a few instances where it would make more sense for you to get a regulated buy-to-let mortgage. For example, if you’re buying a property for your child, parent or grandparent to rent out, if a sibling wants to rent out your property with a partner or friend, or if you want to live in the house yourself alongside a tenant.
This type of mortgage is designed for children, siblings, parents or grandparents. Cousins, second cousins, aunts and uncles don’t meet the criteria.
Eligibility criteria for family buy-to-let mortgages
As with other standard mortgages, the lender will be looking at your affordability and your personal income rather than the potential rental income the property could earn. They may also have other requirements such as:
A maximum loan-to-value (LTV) of 75%
An individual applicant, not a joint applicant
A minimum age of 25 and a maximum age of 75
How much can you borrow on a regulated buy-to-let mortgage?
This will depend on your personal finances. The lender will look at your annual income, outgoings, age, and whether or not you meet their criteria. Lenders usually lend between 4.5 and 5.5 times your income. To get a better idea of what that means for you, try our mortgage calculator.
How to switch from an unregulated to a regulated mortgage
If you bought a property with a standard buy-to-let mortgage and have been renting it out to tenants, but now decide you want to rent it out to a family member instead, you’ll need to switch to a regulated mortgage.
The first thing to do is speak to your lender. They might let you remortgage onto a regulated version, which is an easy switch to make.
It’s also worth speaking to a regulated buy-to-let mortgage specialist to check you’re getting the best deal. They can assess the rates and terms your current lender is offering and compare them against what else is available on the market. If they find something better with a different lender, you could remortgage with them instead.
The Mortgage Hut can help
Regulated buy-to-let mortgages are niche, so it can help to have an expert by your side. We’re a team of specialist mortgage brokers and our family buy-to-let specialists have helped hundreds of borrowers find the right deal to help them rent out their home to a relative.
We can help you find a lender with a regulated buy-to-let mortgage product that works for your circumstances and is most likely to approve your application. We’ll even help you through the application to identify and avoid any potential obstacles along the way. Just contact us to get started.
FAQs
What happens if you’re caught living in an unregulated buy-to-let?
If you have a standard buy-to-let mortgage, not a regulated one, and you or a family member live in the property – you could be in breach of your mortgage contract. Your mortgage lender would be within their rights to demand payment of the remainder of your mortgage loan in full.
Do family members need to sign a formal tenancy agreement when renting your property?
While there’s no official rule, it is a good idea to have an agreement in place when renting your property to someone else – even if they’re a relative. It’ll avoid the risk of disputes and makes sure both you and they are protected.
Can my child live in my buy-to-let property?
Yes, but you’ll need to apply for a regulated buy-to-let mortgage if they’ll be occupying more than 40% of it.
