The chances are that you would let your home or property out to a family member someday. You might be relocating, investing for your kids or need urgent cash. In any case, the processes are not as simple as you would have thought.
You might wonder, since you have rented or owned the property, you can let it out as you please and to whomever. Well, there are guiding rules to all buy-to-let properties, regardless of the tenant. More so, buying-to-let to a family can be gravy, if at all it is possible.
So, is it possible? Can you let out a mortgaged property to your relatives? If yes, are there restrictions to whether they are immediate or extended family members?
Keep reading to find the answers!
Can You Let Your Property Out To Your Relatives?
Yes, it is possible if you look in the right places!
However, note that but-to-let mortgages, conventionally, don’t support subletting properties to family members. The terms and conditions are against such arrangements. And the reason is that lenders and property owners worry about the Financial Conduct Authority (FCA). Why?
If you had stipulated in your agreement that you would acquire a buy-to-let for a family member, FCA processes become cumbersome. Because now, the authority will delay the sales processes with regulations and a series of advisory services. And here is what lenders fear the most: reduced proceeds from mortgages!
When FCA steps into cases of buy-to-let mortgages for family situations, they go rounds on making the conditions affordable for the buyers. As though that has not dented the lender’s income enough, the processes still demand lots of work from him.
So, to avoid loss and the hectic processes, lenders favor the standard buy-to-let mortgages that don’t necessarily indicate if you will let properties out to your relatives. But what if you buy the regular and decide to let your sister?
If you violate the rules of a standard buy-to-let mortgage, you will be inviting the wrath of your lender. What wrath?
What Happens If You Fail To Tell Your Lender About Letting Your Family?
You will be committing mortgage fraud when you don’t inform your lender about your family tenancy situation. Unfortunately, that is punishable. Your lender might ask you to repay your mortgage in its entirety – and within short notice.
You will agree that it is wise if you inform your lender about the situation then. Even at that, know that he might not receive the information with glee. If the agreement doesn’t meet a 125-145% monthly repayment plan on your loan/mortgage, your lender might not accept your bid.
In that case, what should you do?
Find Lenders That Offer Family Tenancy Options
Indeed, family tenancy for buy-to-let properties can be a pin in a haystack, but it is possible. Once your lender fails to welcome your situation, look for one who does!
And if you are wondering about the limitations on family buy-to-let mortgages, it depends on you. It doesn’t matter if you are letting the property out to your son or second cousins; they are all your family members!
That said, note that only a few lenders offer family buy-to-let properties. But with the help of experts like Voeuk Conveyancing, you can find the right one. And when you do, your repayment could reduce to about 100% of your loan. But you must first meet the requirements of such a lender.
The Requirements You Must Meet Before Lenders Agree To Family Buy-to-let Options
Note: lender requirements might vary depending on your city or the property. That said, we have only highlighted the basics.
Even after agreeing to a regulated or family buy-to-let agreement, your lender needs reassurance. That will often come in the form of financial backup. And the first of such is your initial deposit.
Lenders may request you to pay large deposits than you would with unregulated buy-to-let mortgages. Perhaps to glean enough from the stress and reduced income he already suffered.
Secondly, a lender might request proof of your financial situation. Since you are getting the property far below market value, he needs reassurance that you can indeed repay the mortgage. And that’s regardless of your rent agreement.
Lastly, your lender may request that you will only take the loan on a repayment basis. That way, he won’t worry about interest returns as long as you meet the timelines.
Outside financial obligations, you must act accordingly as a landlord. That means you must comply with the rules and regulations of the Housing Health and Safety Rating System. And it doesn’t matter if the property tenant is your nana or last-born child; you must comply still.
Furthermore, note that you will pay taxes and stamp duties on the rent regardless of how small or hefty you bill your family member. And most importantly, you must have a coherent, clear, and signed rental agreement.
About the rental agreement, you should state and consider all scenarios. An example of such could be what to do in case of demise. Your tenants, even if they are your daughters, should know what to do. In summary, don’t treat your buy-to-let casually.
You can let your buy-to-let properties to a family member. But you do it the right way; don’t exclude the details from your lenders. Else, you may have to repay your entire mortgage all at once and within short notice.
If you informed your lender of your conditions and such a lender dismissed the proposal, find one who offers your needs. When you do, it is crucial that you treat the situation formally. Act accordingly like a landlord; handle the repairs and taxes. Most importantly, see to it that your tenants are comfortable.