Is it Wise to Rent My Property to a Family Member?
If you have a vacant property that needs filling, and you have a family member that needs a place to live, then this is surely a no-brainer, right? Kill two birds with one stone by having them rent your place. Is it wise? What are the downsides?
There’s no doubt that renting a property as a landlord can sometimes be a stressful experience.
Finding quality tenants and maintaining a rental property can be a time-consuming task. Therefore, it may be quite tempting to rent the property to friends or family because these are people that you already get on with.
But can you legally rent to a family member? If so, should you rent to a family member? Let’s find out.
Can I rent to a family member?
Yes... but there can be complications. Letting your buy-to-let to a family member isn’t always as straightforward as it seems.
Ok, so it’s not that simple! You can rent to a family member, but only if you have the correct mortgage in place.
Specifically, you’ll need a buy-to-let mortgage. More importantly, you must inform your lender that you intend to rent to a family member - failure to do so may be considered mortgage fraud.
Lenders need to know if you’re going to rent to a family member because it means more risk for them. In the lender’s eye, there is an increased likelihood of missed payments, as they may believe you will be more lenient with family members. You may also have problems evicting family members or imposing the necessary rules on them. Most of all, the lender will be worried you’ll charge your family less-than-market ‘mates rates’ rent.
Lending criteria will vary from lender to lender. Some will be more easy-going than others, and some may not be willing to lend you at all - but rest assured, it is possible to get a BTL mortgage if you want to rent to a family.
So now the question is, should you?
Should you rent to a family member?
The reason we ask is that, well, we’ve been doing this for a long time, and we’ve seen numerous family situations turn ugly.
Early problems may occur if they ask for a discounted rent. Telling them 'no' is never an enjoyable conversation. Even if you are willing to charge them less, you have to keep your mortgage repayments in mind.
Once they’re in, all manner of things could start going wrong. A tenant missing rent payments, breaking the rules, or generally causing a nuisance is bad enough - when that tenant is your family member, things get very awkward, really quickly.
Having said that, you obviously know your family far better than we do, and you may have complete faith they will be a good and reliable tenant. In which case, go for it! You both get something out of the deal, and it saves you the trouble of having to find a tenant.
Do I still need a tenancy agreement?
Yes, absolutely - get it all in writing as you would with a normal tenant. That way you’ll know exactly what is expected of each other, and it can be used to settle possible disagreements later down the line. You should also compile an inventory for this same reason.
Do I still need to pay tax on the rent I receive?
Afraid so. As a landlord, you have to pay income tax on all the rent you receive, including that which comes from family.
Can I rent to a family member on benefits?
As long as you’re not living in the property as a resident landlord, the family member should still be able to claim housing-related benefits. You’ll need to have a legally binding tenancy agreement in place for this to be possible.
Do I need to take a deposit when renting to a family member?
While you’re not legally required to take a deposit, it is HIGHLY recommended that you do so - even when renting to family. Property damage, loss of items and rent arrears are still a possibility - a deposit will protect you.
Remember that you must protect the deposit in a government-approved tenancy deposit scheme within 30 days, and you must tell your family member where their money is protected. Also, remember you can only charge a deposit of no more than 5 weeks’ rent.
Do I still need landlord insurance?
Yes, even if you’re renting to a family member, your mortgage lender will insist on a valid building insurance policy. We’d also recommend getting additional levels of cover, such as:
- Contents insurance
- Liability insurance
- Home emergencies
- Loss of rent
What about renting a room?
If you’re renting a room to a family member as a resident landlord, they would be classed as a lodger rather than a tenant. Most lenders won’t require you to have a buy-to-let mortgage if you’re renting a room to a family lodger. However, it’s worth checking your lender’s policy on this before going ahead.
Need advice?
For advice on any and all things lettings, get in touch with the letting experts at Amber Homes today. Call Nadine on 01773 749972.