Letting to a family member

Can you let a property to a family member?

Yes, you usually can. People do it all the time, whether it's a parent buying a flat for their child at university, or housing an elderly parent. 

Legally, you're free to let your property to a relative. The catch is the mortgage. A standard buy-to-let mortgage is designed for letting to someone you're not related to, on a commercial basis. Let to close family on that kind of mortgage, and you're likely breaking its terms.

That's why letting to family usually means a specific type of loan: a regulated buy-to-let, also called a family buy-to-let.

Regulated vs unregulated buy-to-let: what's the difference?

Why this matters

Get this wrong and it's more than a technicality. The type of mortgage you need decides which lenders you can use, how much you can borrow, and whether you're keeping to the terms of your loan at all. Letting to family on the wrong type of mortgage can put you in breach, so it pays to understand the difference before you go any further.

Unregulated buy-to-let

Most buy-to-let mortgages are unregulated. They're treated as business lending, so they sit outside the Financial Conduct Authority's (FCA) mortgage rules, and affordability is based mainly on the rent the property will earn.

Regulated buy-to-let

A regulated buy-to-let is different. Because a family member will live there, it falls under FCA rules, the same framework that protects residential mortgages. That means more thorough checks, and affordability is judged on your personal income, not just the rent.

Which is best for you?

The trigger is how much of the property your relative lives in. Under the FCA's rules, if you or a related person will occupy 40% or more of the property as a home, the mortgage is regulated.

This is how that 40% rule looks in practice:

•    A relative living in the whole property, say a flat you buy for your daughter, is well over the 40% mark, so the mortgage is regulated.
•    A relative renting one room in a larger shared house, alongside unconnected tenants, may fall under 40%, so a standard buy-to-let could work.

A related person means close family: your spouse or civil partner, parent, child, sibling, grandparent or grandchild. More distant relatives, like cousins, aunts or uncles, often don't trigger regulation, so a standard buy-to-let may be fine. 

Always check with your lender or a mortgage adviser to make sure you’re choosing the correct mortgage.

Why you must tell your lender

This is the part people get wrong. If you let to a close relative on a standard buy-to-let mortgage without telling your lender, you could be breaching your mortgage terms, even if the payments are up to date.

The consequences can be serious. A lender that finds out can ask you to repay the whole mortgage straight away, or move you onto a more expensive rate. Not disclosing this counts as withholding information from your lender, and that gets recorded on your file. When you come to apply for a mortgage in future, other lenders check that file too, so they'll see that information was hidden rather than declared.

None of that is worth the risk. Being upfront from the start means your lender puts you on the right mortgage, and everyone knows where they stand.

Getting a mortgage to let to family

Fewer lenders offer regulated buy-to-let mortgages. That doesn't make them hard to get, but as with any mortgage, it's important to find the right product for your circumstances. A few things lenders usually look for:

•    A solid personal income. Because affordability is based on you, not just the rent, some lenders set a minimum income.
•    A larger deposit. Expect to put down at least 25% of the property’s price in most cases.
•    A genuine, documented arrangement. Lenders usually want a proper written tenancy agreement, and a rent that reflects the local market, even if you plan to be flexible in practice.

This is where advice earns its keep. An adviser knows which lenders consider family lets, and can apply to the right one on your behalf, which saves time and unnecessary credit checks.

Tax and other things to think about

Renting a property to family is still a let, so the usual responsibilities apply, plus a few extra things to think about:

•    Tax. You'll need to declare the rental income to HMRC, even at a family rate. And if you charge below market rent, you usually can't claim more in expenses than the rent you receive. The rules can get complicated, so speak to a tax specialist.
•    Inheritance tax. If you're buying for a relative as a way of passing on wealth, there can be inheritance tax rules, particularly if you give away a property but still benefit from it. As we always say, get proper advice before you commit. We can help with the mortgage side, but for tax implications, you'll need to speak to an accountant.
•    Insurance. You'll need landlord insurance, as standard home insurance won't cover a rented property.
•    Keep it formal. A written tenancy agreement protects both sides, and it's usually a lender requirement. It also makes things clearer if family circumstances change.
•    The relationship. Being someone's landlord and their relative at once can be tricky. It's worth agreeing upfront how you'll handle rent, repairs and any awkward conversations.