BTL regulated mortgage to family member?

[Quattr04.]

My current situation is, I own a house with a residential mortgage with Barclays, house is worth £300k with a balance of 217k

Currently repaying £1200 a month on a standard mortgage

We have been trying to sell but market is still very quiet, my mum is aging and looking to downsize, from her current rental so we are exploring the ways in which we can rent the house to her but want to keep it above board, rent valued at £1300 a month via a letting agent

We would move into a rental property which is more expensive and above what my mum can afford

This would be a temporary measure for 5 years

Spoken with Barclays who said it has to be a residential mortgage with permission to let, which is fine, but I would like to explore other options as our current fix comes to a end in September

From my research online I see that the 3options seem to be:

Regulated BTL, only seems to be building society’s that offer this as interest only

Or

A residential mortgage with a bank and then permission to let

Or

A standard BTL mortgage - do they ever really check who your tenant is?


Not sure which way to go, I would like to do interest only so we can earn a bit off the top if possible, has anyone got any experience of this situation and how did you go about it?

[98elise]

In my BTL experience they never check who your tenants are, but they do ask about the type of tenant you're planning to let to. It's been a while so I can't remember if they ask about family as tenants. I know they don't like it.

PH member Sarnie is a mortgage broker so he will likely post good advice.

[Quattr04.]

98elise said:

In my BTL experience they never check who your tenants are, but they do ask about the type of tenant you're planning to let to. It's been a while so I can't remember if they ask about family as tenants. I know they don't like it.

PH member Sarnie is a mortgage broker so he will likely post good advice.

When I looked into it, the first question they asked was “are you planning to let to family”

God knows why it matters, it’s market rent prices, and I’m getting 12 months upfront

[nikaiyo2]

You can get a BTL mortgage and let to family members, it is perfectly possible, you will pay a bit more. You need to talk to a broker not your bank

However your numbers make no sense at all to me. If your mortgage payment on a residential is £1200 pcm a BTL will be more like £1400... before tax. Even interest only its £900 pcm

I think your numbers are right on the limit of affordability, as with the rental income you suggest a would likely only lend £215k. IMHO going into a BTL barely beating the minimum borrowing criteria is utter madness.

[Sheepshanks]

I did wonder if the OP had accounted for tax on the rental as offsetting of costs is limited.

Does it need to be done officially as mum is getting housing benefit?

[Quattr04.]

Sheepshanks said:

I did wonder if the OP had accounted for tax on the rental as offsetting of costs is limited.

Does it need to be done officially as mum is getting housing benefit?

Yes, no benefits currently but she isn’t getting any younger

It’s not about making money, it’s more so she has somewhere secure to live for a few years and gives us the opportunity to rent something we couldn’t typically afford to buy.

I’ve plugged all my details into l&c and getting a call back from them, looks like BTL interest only deals coming out at £850 a month.

I know we would have to pay tax on the profit we made between the mortgage and rent

We are in wales and I’m going to register with rent smart wales and will be managing it so no need to allow for the 12-15% managing agent fees

I accept that the figures don’t really work with it being a repayment mortgage and permission to let which is why I asked the question

[Puzzles]

All imo without expert knowledge.

I would not lie, iirc all applications say no family, so it would be a major breach as it’s treated as a regulated btl. The lender won’t be happy.

When I looked into this, they would only lend based on salary multiples, so add your current mortgage and this mortgage together which has to be less than X multiple of your salary.

They know family can be a liability. How easy will it be to kick your dear old mum out if she falls on hard times?

If I’m wrong let me know!

[Soir]

You’ll pay tax on the rent income from your mum.
Also, waste of £100+ a month to an agent when it’s just for your mum.

I’d always say not to rent to family, but it’s your mum so would be fine.

Here’s an idea. Get your mum pay the rent on the property you move to (instead of paying rent to you) and you just top it up. It’s temporary after all.

[Sheepshanks]

Soir said:

Here’s an idea. Get your mum pay the rent on the property you move to (instead of paying rent to you) and you just top it up. It’s temporary after all.

Or just say nothing and leave the mortgage as it is and get mum to gift a suitable amount per month?

[98elise]

Quattr04. said:

98elise said:

In my BTL experience they never check who your tenants are, but they do ask about the type of tenant you're planning to let to. It's been a while so I can't remember if they ask about family as tenants. I know they don't like it.

PH member Sarnie is a mortgage broker so he will likely post good advice.

When I looked into it, the first question they asked was “are you planning to let to family”

God knows why it matters, it’s market rent prices, and I’m getting 12 months upfront

They look at it purely from a risk perspective, and if things go wrong you are far less likely to evict a family member. Your problem can very quickly become their problem.

[98elise]

Quattr04. said:

Sheepshanks said:

I did wonder if the OP had accounted for tax on the rental as offsetting of costs is limited.

Does it need to be done officially as mum is getting housing benefit?

Yes, no benefits currently but she isn’t getting any younger

It’s not about making money, it’s more so she has somewhere secure to live for a few years and gives us the opportunity to rent something we couldn’t typically afford to buy.

I’ve plugged all my details into l&c and getting a call back from them, looks like BTL interest only deals coming out at £850 a month.

I know we would have to pay tax on the profit we made between the mortgage and rent

We are in wales and I’m going to register with rent smart wales and will be managing it so no need to allow for the 12-15% managing agent fees

I accept that the figures don’t really work with it being a repayment mortgage and permission to let which is why I asked the question

Private individuals cannot offset any mortgage interest as an expense any more, instead you get a 20% credit. If you're a high rate tax payer it means you pay taxes on profit you haven't made.

If your actual profits small then you could end up owing more tax than your entire profit.

Ltd companies can still deduct interest, so a lot of new BTL landlords go that route now.

[Sir Bagalot]

Houses don't sell for one simple reason. Price. The market has dropped.

Also, if relevant, google Contrived tenancy

[Countdown]

A minor point which may or may not be relevant - Council can get awkward is family members are claiming Housing Benefit for living in a relative's property.

[Killer2005]

98elise said:

Quattr04. said:

98elise said:

In my BTL experience they never check who your tenants are, but they do ask about the type of tenant you're planning to let to. It's been a while so I can't remember if they ask about family as tenants. I know they don't like it.

PH member Sarnie is a mortgage broker so he will likely post good advice.

When I looked into it, the first question they asked was “are you planning to let to family”

God knows why it matters, it’s market rent prices, and I’m getting 12 months upfront

They look at it purely from a risk perspective, and if things go wrong you are far less likely to evict a family member. Your problem can very quickly become their problem.

Partly that.

You're more likely to let a family member off the rent, potentially putting more financial stress on the borrower.

Also, as mentioned in the OP, letting to a family member is a a regulated BTL that most high street lenders won't lend on, which is why they ask. Deliberately giving an incorrect answer is technically mortgage fraud and be prepared for higher costs if they find out. And checks can be done once it's live, so they could find out.

[Sarnie]

Quattr04. said:

My current situation is, I own a house with a residential mortgage with Barclays, house is worth £300k with a balance of 217k

Currently repaying £1200 a month on a standard mortgage

We have been trying to sell but market is still very quiet, my mum is aging and looking to downsize, from her current rental so we are exploring the ways in which we can rent the house to her but want to keep it above board, rent valued at £1300 a month via a letting agent

We would move into a rental property which is more expensive and above what my mum can afford

This would be a temporary measure for 5 years

Spoken with Barclays who said it has to be a residential mortgage with permission to let, which is fine, but I would like to explore other options as our current fix comes to a end in September

From my research online I see that the 3options seem to be:

Regulated BTL, only seems to be building society’s that offer this as interest only

Or

A residential mortgage with a bank and then permission to let

Or

A standard BTL mortgage - do they ever really check who your tenant is?


Not sure which way to go, I would like to do interest only so we can earn a bit off the top if possible, has anyone got any experience of this situation and how did you go about it?

Your other limiting factor is that you are moving into rented so you will no longer be an owner occupier, which is a main requirement for a lot of BTL lenders.

I can help with this if you want to drop me a line, always happy to chat

[Quattr04.]

Just wanted to add, l&c found a product for us with a building society, interest only for £850 a month so with the rent at £1300 should actually give a ok yield too.

[ThingsBehindTheSun]

Quattr04. said:

Just wanted to add, l&c found a product for us with a building society, interest only for £850 a month so with the rent at £1300 should actually give a ok yield too.

Don't forget the tax you have to pay on the rent.

Edited by ThingsBehindTheSun on Tuesday 13th May 17:12