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What happens if I rent to a family member?

If you are looking to rent to a family member, and are looking to obtain a mortgage, it’s important to be aware that not all lenders are comfortable with this.

If you’re seeking a buy-to-let mortgage for your investment property, the lender is likely to require you to charge rent at 125% or higher than the monthly mortgage costs, so it may not be possible for you to give your friends or family a discount or let them live in the property for free.

Regardless of the relationship you have with your tenant, you’re also still running a business and need to have a rental agreement and abide by the legal rules and regulations associated with letting a property out.

Even though it may feel strange, you should sign a formal written rental agreement to protect yourself. If eviction becomes necessary and you do not have a written agreement, the process can become costly and not to mention stressful.

Making sure the property is legally let

Making sure the property is legally let Under the Housing Health and Safety Rating System, all properties that are let privately must abide by 29 rules and regulations. This means they need to be warm, free from damp and leaks and the electrics and gas must be safe. An annual gas safety check and a certificate issued by a Gas Safe professional is required as part of this. You also need an Energy Performance Certificate to highlight the property’s energy efficiency rating and see if further repairs or improvements to the property are necessary.

These are legal responsibilities and knowing or being related to the tenants does not remove these responsibilities as a landlord, even if you are charging no or a reduced rental.

You will still be liable for tax

If you do decide to let the property to a family member or friend, if they pay you any rent at all this must be declared. If the rent is higher than the tax-deductible costs of running the property, you may need to pay tax on the excess rental.

If you need a mortgage to buy the property, you should speak to one of our specialists, as mentioned above, not all lenders like to provide buy-to-let mortgages for properties that are rented to family and friends. Save yourself the hassle and let our buy-to-let specialists help source the right lender and secure the finance that you need to make it happen.

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Because we play by the book we want to tell you that…

Your home 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 circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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.

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