Landlords have a lot of responsibility, and it’s not always easy to find good tenants. Many landlords consider renting their property to family members, but is that allowed, and what rules and regulations do you need to follow?
Read our guide below to find out everything you need to know if you’re considering renting your property to a family member.
Can you legally rent to a family?
You can rent to a family member if you want to, however, to ensure that it’s legal you need to have the right mortgage in place.
Inform your mortgage lender that you want to rent to family member before they move in. This is because if you don’t, your lender may think you’ve committed mortgage fraud. Lenders review your mortgage criteria in a different light when you’re renting to a family member, and some providers may not agree to lend to you at all. This is because it’s seen as an increased risk for the lender; people tend to be more lenient with family, and evictions are much harder to enforce. It's also more difficult to charge the maximum amount of rent from family members, and lenders are aware of this too.
When letting out your home to a family member, you still need to follow all the landlord rules and regulations. You have to do all the relevant health and safety checks in exactly the same way that you would for any other tenant.
Do I need a buy to let mortgage when renting to family member?
Yes, when renting to a family, you need to take out a buy to let mortgage, and you need to inform the lender that you’re renting to a close family member .
Immediate family includes any siblings, parents, grandparents, grandchildren, or your spouse or civil partner. Cousins, uncles, aunts, nephews and nieces aren’t always considered as close family members, but each lender has different criteria so make sure you check with them before going ahead.
Can I rent a room to a family member?
If you’re renting out a room of your home to a family member, they’d most likely be considered a lodger rather than a tenant. If this is the home you live in then you wouldn’t need to change your mortgage to a buy to let, but it might be worth a chat with your lender, just to double check.
Tips on renting to family members
· You always need a tenancy agreement when lending to family; this is essential to any rental situation. This agreement sets out the rights and the obligations of both parties – the tenant and the landlord. It states how much rent is due each month, and the date that it’s due. It also explains how long the notice period is and the length of the tenancy’s fixed term.
· There’s no legal requirement to take a tenancy deposit when renting to a family member, but it’s always recommended that you do. As a landlord, you need to protect yourself against any financial losses from damage, or rent arrears.
· If you do take a deposit, it’s a legal requirement that you put it in a government approved tenancy deposit scheme within 30 days. You also need to inform your tenant where the deposit is being kept within 30 days of them moving into the property.
· When renting to family member, it’s tempting to reduce the level of rent you charge in order to make it easier for them. However, most lenders require your rental income to cover a minimum of 125% of your mortgage payments, so you must bear this in mind when setting your rent levels.
· You’ll need to be assessed for any income tax and national insurance that’s owed on your rental income, even when it comes from family members.
· You must maintain the property so that it’s a safe and comfortable place to live, and this is your responsibility, even when renting to family members. This means having annual gas safety checks, and making sure you have a valid Energy Performance Certificate in place, amongst other things.
· Make sure you have the right insurance policies in place. Your mortgage lender will insist on building insurance, but it’s also worth considering landlord insurance. There are various levels of landlord insurance and it can cover you for things such as missed rental payments and legal costs.
· Consider registering as a landlord with a letting agent. The letting agent can manage the property for you and this reduces the amount of problems you might have with late rent payments etc. They can handle everything on your behalf and this can reduce family tensions by keeping everything professional.
When you have a buy to let property it’s important to remember that it’s still a business investment, even if you choose to rent it out to family members. The lines can become blurred, but you need to protect yourself and your investment. It’s important that you follow all the rules and regulations to ensure that your tenant is protected too. This is why your tenancy agreement is so important.
If you have a buy to let property, book your free rental valuation with us now so you know exactly how much rent you should be charging in today’s market.
