Looking at Multiple ways of Renting to a family and getting a Buy to Let Mortgage
If you are reading this article on “Renting to a family member” you may have been stonewalled by the Mortgage Lenders you have approached.
It’s certainly not a case of “blood is thicker than water” in most Mortgage Lenders eyes. By why is this? I’m a professional Mortgage Broker and in this article, I will provide an insight into Mortgages Lenders thinking and provide multiple solutions to the on mortgages for Renting to a family member.
Lets first start with why family let mortgages are a taboo.
It stems from what is known in financial circles as “scheme abuse”. This is mainly historic as the measures and checks are in place to assess property usage before and after the mortgage has gone through. In the case of the family let mortgages applicants were masquerading that they would be receiving rent when in fact this was never their intention they were simply helping out their relatives onto the housing ladder. In this instance, they typically left the mortgage repayments to be made by the relatives directly to the Mortgage Lender, payments which ultimately they may of had difficulty making as their status was never assessed. Non-payment results in Mortgage Lenders forking out unwanted admin costs, and also legal and sales fees in the case of repossession so is not a path they want to tread.
To change tact slightly perhaps the applicants were expecting rent. However, if their grandmother or son failed to pay them they’d probably take in on the chin but if they void period runs for a long time then the applicant too might be stretched to keep up with the mortgage so the same net result. One common way out of a large commitment such as a mortgage is to sell the property but again this might not seem like an option to the applicant to make their elderly relative homeless.
Seeing the potential difficulties with family lets the mortgage regulator has put in a framework for added consumer protection and classified them as “regulated mortgages”. This extra layer of paperwork has stripped back most of the main Buy to Let Mortgages who prefer to operate in the mainstream private tenant market rather than contend with the bureaucracy.
So that’s the backdrop. As with most mortgage stances, there are always Mortgage Lenders that are willing to make exceptions to distinguish themselves from the pack.
RENTAL COVERAGE
If are looking for a family let mortgage that is primarily based on rental coverage then these are very hard to come by indeed, and I would strongly advise you seek the services of a professional Mortgage Broker, such as Niche Advice. Typically the Mortgage Lenders are regional building societies that operate in certain postcode areas. Remortgages are easier to get through if you can show say six months payments from the relative into the applicant’s bank account as this removes any preconceived barriers on whether this is a true commercial arrangement.
The mortgage product choice might be limited to discounts, trackers or variables. The deposit is likely to be a minimum of 25% to 30%. Both interest only and capital & interest.
FAMILY LET USING YOUR AFFORDABILITY
Family let mortgages that appraise the applicant’s outgoings to make sure they are well placed to cover rental void periods and are easier to come by but are really only open to middle-aged applicants with excellent jobs. The Mortgage Lender will still look for excess rental coverage on a tenancy agreement.
Most types of mortgage product are available, but not many of them, so the price is likely to be behind normal buy to let rates. The same deposit requirements and repayment options as above.
SECOND HOMES
If it is a property you also intend to live infrequently this can be a viable alternative as it removes the need for rent verification altogether and looks purely at affordability.
An example might be buying a property for your daughter to live in full time near her university and you visit every weekend.
This should attract very attractive mortgage rates and the deposit requirements are likely to be as little as 10 per cent but the repayment method may be limited capital and interest.
RAISING THE FINANCE ON OTHER PROPERTIES
Perhaps you have equity in other property that could be released to buy the family let outright? If so this might be an option.
Niche Advice offers holistic advice on mortgages for Renting to a family member. and will, therefore, present all the options open to you for an informed and appropriate decision.
