Can You Rent to a Family Member?

Whether you can rent your house to a family member will depend on your situation and if there’s already a mortgage on the property.

Renting to Family Members

Here are some different scenarios for renting to family members and your options:

• If you own a property outright and there’s no mortgage left to pay on it, then it’s yours and you can rent it to whomever you like or even let them live there for free
• If you already have a residential mortgage on a property that you want to rent out, you consent to let from your lender to rent it to anyone, including a family member. Not all lenders will grant you consent to let, especially to family, so ideally you would have checked with them before you took out the mortgage if you thought this could be a possibility. If you rent your property to family without consent from your lender, you would break the terms of your mortgage and possibly incur penalties
• If you want to buy a property with the intention of renting it out to family, then you’ll likely require a family buy-to-let mortgage also called a regulated or consumer buy-to-let mortgage

What to Consider When Renting Property to Family

There are some considerations that come with renting to family. 

Firstly, there’s the dynamic. How will the landlord/tenant relationship work? You’ll need to decide who’s responsible for what. If you opt for a regulated buy-to-let mortgage, then your lender will require that an AST (assured shorthold tenancy agreement) is in place.

Secondly, there’s the longevity of your agreement. Will you eventually want to transfer ownership to the tenant? If that’s likely, you can’t simply add them to a regulated buy-to-let mortgage as that’s against the rules. In this circumstance, they may need to take out a new residential mortgage on the property at a later date and purchase it from you. What’s more, adding someone to a mortgage usually involves adding them to the title deeds, thereby transferring ownership from a sole name to joint names, which may incur Stamp Duty.

Thirdly, the mortgages available to you may be limited, depending on your relationship with the tenant. We explain this in more detail below.

Do I Need a Buy-to-Let Mortgage if Renting to a Family Member?

If you want to let a property to a close relative, like a parent, child or sibling, you’ll need a family buy-to-let mortgage, otherwise known as a consumer buy-to-let mortgage.

Family buy-to-let mortgage 

Family buy-to-let mortgages are regulated buy-to-let mortgages. These are slightly different from typical buy-to-let mortgages as they’re specifically for people who want to buy a property and rent it to immediate family. There are also regulated buy-to-let mortgages that are useful for those who have become accidental landlords through inheritance or a change in circumstances. The way in which regulated buy-to-let mortgages differ is simple: they’re regulated by the FCA. This essentially means they have tighter guidelines. 

Regulated buy-to-let mortgage criteria 

For a regulated buy-to-let mortgage for a family member, the lender will want to make sure you can afford the mortgage based on your personal income – not just the rental income. This is because your relationship with the tenant(s) makes you a riskier investment for the lender. For example, from the lender’s perspective, it’s more likely that you could relax the terms of the tenancy if the tenant is a family member, which could affect the condition of the property and the income you receive from it.  

Nonetheless, regulated and traditional buy-to-let mortgages do share some similar criteria, as the several lenders which offer the former usually do so as a subset of the latter.  

The market for regulated buy-to-lets is restricted due to the additional regulatory requirements this type of lending attracts and the fact that not all lenders have the resources to cope with it. You’re much more likely to find a suitable regulated buy-to-let mortgage if you use a broker.  

It’s worth noting that there are lenders that’ll consider a traditional buy-to-let mortgage where the tenant is a somewhat distant relative of the landlord, like a cousin or aunt.  

How Much Can I Take Out on a Family Buy-to-Let Mortgage?

For both normal and regulated buy-to-let mortgages, the size of the loan you’re able to take out largely depends on the open market rental for the property you want to buy, as rent should cover 125% – 145% of the proposed mortgage payments at a nominal stress test rate. If you’re renting to a family member, the lender will also consider your personal income as part of the assessment. You can ask your broker about how this works in more detail.

Deposits for Regulated Buy-to-Let Mortgage

You should typically expect to put down at least 25% of the purchase price for a regulated buy-to-let mortgage – 25% is usually the minimum amount you would need in deposit for any kind of buy-to-let mortgage.

Other Options

If you already have a lot of equity in another property – such as your main residence or a buy-to-let you already own – you could raise money via a remortgage on that property and use the money to purchase this new one.

HMRC Renting Property to Family Members

When you rent to family members in the UK, you must report the rental income to HMRC via a Self-Assessment tax return. You’ll likely pay Income Tax on your rental income from the family member, whether you opt for consent to let or use a buy-to-let mortgage.

Learn more about Tax on rental income in our guide.

Do I Need Landlord Insurance if Renting to Family?

You need landlord insurance whenever you rent property, including if you rent to family. This is because standard home insurance won’t cover for the additional risks that come with renting.

Buying a House to Rent to a Family Member Summary

While it’s possible to buy a house and rent it to a family member, it’s crucial to approach renting to a family member with the same level of diligence and professionalism as any other rental arrangement. There are some important considerations and potential implications to consider.

1. Fair market rent: 
   • The rent charged to the family member should be at or near the fair market rent for similar properties in the area. Charging significantly below market rent could impact your ability to refinance as lender take rental into consideration for assessing affordability
2. Tax implications: 
   • There may be tax implications for both the landlord and the tenant in a family rental arrangement. It’s advisable to consult with a tax professional to understand the tax implications, potential deductions, and any specific rules that apply
3. Assured shorthold tenancy:
   •  It’s recommended to have a formal lease agreement in place, even if you are renting to a family member. This document should outline the terms and conditions of the rental, including rent amount, duration, and any other relevant details
4. Lender approval: 
   • If you are financing the purchase with a mortgage, its best to speak with a broker as not all lenders will accept renting to a family member under the terms of your mortgage agreement. Some lenders who can consider won’t consider the rental but the personal income of the landlord. The reason for this is that if the tenant couldn’t pay the rent, due to the connection there is an unlikely hood the tenant would be evicted as a result the lender will want to ensure the landlord is able to cover any rental voids
5. Property management: 
   • Consider how you will manage the property and address any maintenance or repair issues. Having clear communication and expectations with your family member tenant can help avoid potential conflicts
6. Insurance: 
   • Inform your insurance provider that the property will be rented out, even if it’s to a family member. This may impact your insurance coverage, and it’s important to have appropriate landlord insurance
7. Exit strategy: 
   • Consider what will happen if the family member decides to move out or if circumstances change. Having a plan and how the property will be managed in different scenarios is important

For more information on purchasing a buy-to-let property, see our Buy-to-Let Guide. It explains everything you need to know about how buy-to-lets work, deposits, additional costs, tax relief and more.

Or, have one of our mortgage advisers explain everything in more detail. Simply call us on 023 8235 2300 or make an enquiry.