Regulated Family Buy-To-Let Mortgages Explained

Being able to trust that your property is in good hands while helping someone you care about is why renting to family members is quite common. However, there can be implications when it comes to financing. You’d need a regulated buy-to-let mortgage for this type of home loan.

So, how does a regulated mortgage differ from a standard buy-to-let? The guide below provides this information and all the guidance you’ll need to approve your application.

Can you rent to a family member under a buy-to-let mortgage?

Yes, but the family member would have to occupy less than 40% of the property if you want to use a standard buy-to-let mortgage; perhaps they just rent a room while other tenants live in the rest of the property, for example.

If they occupy more than 40% – which would be the more typical scenario – you’d need to apply for a regulated mortgage, also known in these circumstances as a family buy-to-let mortgage.

What is a regulated buy-to-let mortgage?

This specialist mortgage allows a borrower to rent out the entirety of their property, or above 40%, to a relative. As the borrower, you could live in the property alongside other tenants.

The Financial Conduct Authority (FCA) regulates loans like residential mortgages. Still, the number of lenders offering this type of loan is lower, and the requirements tend to be stricter.

That’s because lenders know that families may not charge one another as much in rent and may be more inclined to let missed payments slide. This could lead to trouble with mortgage repayments, which is why lenders view them as riskier loans.

The differences between a regulated and unregulated buy-to-let mortgage

In short, when you apply for an unregulated buy-to-let mortgage, you’re not planning to live in the property yourself or to rent it out to your family, whereas a regulated buy-to-let mortgage would allow for that to happen. The below table lists the other key differences.

Potential scenarios for a family buy-to-let mortgage

It might make sense to get a buy-to-let mortgage for the family if:

• You’re a parent who wants to buy a property for their child to rent out.
• You want to have your parents or grandparents move into a property you’re purchasing.
• You want to live in the house yourself alongside a tenant.
• Your sibling will rent out your property with a partner or friend.

Eligible family members

In order to apply for this type of mortgage, you must already have the family member in mind, and they should have agreed to this arrangement.

They also have to be a close family member, such as a:

• Child
• Sibling
• Parent
• Grandparent

Cousins, second cousins, aunts and uncles won’t meet the criteria for this loan type.

How a buy-to-let broker can help

Working out whether getting a buy-to-let mortgage with family tenants in mind is right for you and then applying for one comes with a whole host of complexities. An expert can help you navigate all of that.

The family buy-to-let mortgage brokers we work with:

• Understand the nuances of regulated and unregulated buy-to-let mortgages and can ensure you’re applying for the right one to suit your circumstances.
• They are familiar with and have relationships with lenders that offer family buy-to-let mortgages, which means they know which lenders are more likely to approve your application.
• Can help in compiling a regulated buy-to-let mortgage application while also addressing any potential factors that a lender could perceive as risky.

If you get in touch, we’ll arrange for a buy-to-let broker with experience of regulated mortgages to contact you immediately.

Eligibility criteria

As with all other regulated mortgages, a lender will conduct a standard affordability assessment rather than examining the anticipated rental income the property will receive, which would be the key factor for traditional buy-to-let mortgages.

In addition, for this specific type of buy-to-let, certain lenders could have some other requirements.

For example:

• Be an individual applicant rather than a joint applicant.
• Maximum loan-to-value (LTV) of 75%
• Applicants must be older than 25 but younger than 75
• Earnings (other than from rent) above £25,000 per annum to ensure you can afford the mortgage, during periods where the property is vacant

How much you can borrow

The amount you can borrow via a regulated buy-to-let mortgage will depend on your personal financial circumstances – your gross annual income, your outgoings, and potentially your age should you be an older borrower – and whether you meet the lender’s criteria. Differing to a standard buy-to-let, the main factor for consideration is your income rather than the projected rent the property will bring in.

As a guide, you can multiply your income by 4.5 or 5 to get an estimate. Take a look at our mortgage affordability calculator below to see how this may work out for you, based on your own annual income.

For a more concrete figure, consult a broker. They’ll be able to factor in all the elements of your situation to more accurately share the loan amount.

Family buy-to-let mortgage providers

As a slightly more niche product, the pool of lenders offering family buy-to-let mortgages is a little smaller. Many of the high street banks – Metro Bank, NatWest, Bank of Ireland, HSBC, Santander and TSB – for example, don’t offer regulated buy-to-let mortgages.

Some of the lenders that have been known to consider such applications include:

• Virgin Money
• Together
• Saffron for Intermediaries
• Bluestone Mortgages
• Vernon Building Society

Often, lenders won’t engage with an individual directly but prefer to work via an intermediary. This is where a broker can help. Having such a specialist in your corner will also help in sifting through the market to find the best rates and terms currently being offered by lenders.

Typical rates for these mortgages

The table below provides an illustration of the interest rates available at the moment.

The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.

What happens if you’re caught living in an unregulated buy-to-let?

If you or a family member opt to live in your property with an unregulated buy-to-let mortgage and own more than 40% of it, it wouldn’t be illegal, but you’d be opening yourself up to potential problems.

For example, if your lender agreement states that only tenants can reside in the home, your mortgage provider would be within their rights to request that the mortgage be repaid immediately. If you didn’t have the assets to pay the mortgage off in full, you’d have to consider selling the property.

Switching from unregulated to regulated

If your circumstances do change and you or a family member want to live in the property rather than a tenant, talk to your lender to see whether they’d allow you to remortgage onto a regulated version.

It would also be worth talking to a family buy-to-let mortgage specialist who’d be able to share whether the rates and terms your current lender can offer are the best you’d find. If there is a better deal out there, you could remortgage with a different lender.

Speak to a broker experienced in family buy-to-let mortgages

With a mortgage so niche, expert advice is a must. The brokers in our database have specific family buy-to-let mortgage knowledge, which means they wouldn’t be advising you on how to get a generic mortgage but ensuring your application is built specifically with a family buy-to-let loan in mind and identify lenders who offer such mortgages.

Reach out today for your first and free consultation with a broker matched to your situation. Just call 0330 818 7026 or fill out our short enquiry form.