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Letting to a family member can seem like a win-win situation, providing a home for a loved one while they offer reliable rent payments.
Last updated:07 June 2024
Created by: Danny Belton
Written by:Danny Belton -Head of Lending
However, emotions can cloud judgement when renting property to family members. Here's a guide to approaching this scenario with a business mindset while maintaining family harmony.
Check your mortgage agreement
Standard mortgages usually prohibit renting to your family. If you’re unsure, contact your adviser – you will more than likely need a specific buy-to-let mortgage for renting to relatives.
Draft a tenancy agreement
Having a formal tenancy agreement protects both parties, as it outlines rent amount, notice periods, tenant responsibilities (e.g., repairs), and your obligations as a landlord (e.g., gas safety checks). While it may seem like you should be able to trust a family member to treat your rental property with respect, it is still necessary to get this in writing - just in case they don’t.
Set market rent
Although it’s tempting, make sure you don't undercharge your family for rent. Instead, research similar rental properties to determine a fair market rate. This ensures you get a good return on your investment and avoids accusations of favouritism from other family members.
Be clear on communication
Establish clear communication channels early on in the renting process. No one likes an inattentive landlord. Make sure to respond promptly to maintenance requests, and clearly outline your expectations regarding rent payments and rental property upkeep.
Consider potential issues
When you're renting property to family members or friends, you need to anticipate potential problems. What happens if rent payments become late? What’s the process if your property sustains damage? Having a predetermined course of action minimises conflict and resolves issues quickly.
What happens to the property if you pass away?
It’s important to consider what would happen to the property, and the person you are letting to, if anything happened to you. Would they still be able to rent the property? Would the property need to be sold? It's always a wise move to update your will when you have an investment property, and especially when family and friends are involved.
Seek professional advice
When renting property to family members or friends, complexities can often spring up, particularly regarding tax implications. Consulting a solicitor and mortgage adviser familiar with buy-to-let ensures you comply with regulations. While emotions play a role, approach the situation with a business-like attitude. This protects your investment and avoids misunderstandings that could strain family relationships.
By following these steps, you can navigate the potential pitfalls of renting to family and ensure a successful buy-to-let arrangement that benefits both you and your loved ones.
Speak to an experienced mortgage adviser
Do I have to pay tax if I rent to family?
There are no tax exemptions when letting to family members.
Can you rent a house to a family member on benefits UK?
Renting to a family member who receives housing benefit or Universal Credit is possible, provided you maintain separate residences and have a written tenancy agreement in place.
Can I rent a property to a family member?
Yes, read the above article to find out more.
Can I buy a house and rent it to my son?
Yes, although if buying through a mortgage, it will need to be a buy-to-let mortgage as lenders may not allow you to let a property purchased through a standard residential mortgage.
Can I buy my parents house and rent it back to them?
While renting to a family member is possible, it's important to disclose this to your mortgage lender during the application process. Some lenders consider renting to family higher risk, and not informing them could be seen as mortgage fraud.
Important information
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circ*mstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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