Finding and keeping good tenants can be stressful, so it could be tempting to rent out to family members instead. However, letting out a property to your loved ones isn’t as straight-forward as it may seem.
In this guide, we’ll take a look at the pros and cons of renting to family members, the legalities involved, and how you can choose the most reliable tenants for your property.
Can I rent out my property to a family member?
Yes, you can rent your property out to a member of your family if you wish to, but you must have the right mortgage in place before you do so. It should also be noted that some mortgage lenders might see your buy-to-let mortgage as higher risk if you are renting to family members, and therefore they may apply different lending criteria.
Tip: It’s important to remember that, regardless of who you’re renting to, you will still be subject to the same rules and responsibilities as any other landlord.
Speak to a mortgage broker for more advice
What are the laws regarding renting to a family member?
As already mentioned, it is a legal requirement to have the correct mortgage in place when renting to a family member. You must also notify your lender that you’re planning to rent to someone in your family, as failure to do so may be considered mortgage fraud.
Related: Landlord legislation: Everything you need to know before letting a property
Should I get a buy-to-let mortgage if I rent to relatives?
A buy-to-let mortgage is required if you wish to rent out your house to family members.
You must disclose to your lender that you intend to rent to a member of your immediate family if they are:
- Your parent
- Your sibling
- Your spouse or civil partner
- Your grandchild
- Your grandparent
Although they usually don’t qualify as close family, cousins, uncles, aunts, nephews, and nieces should always be checked with your mortgage lender before renting to more distant relatives.
Landlord insurance
A landlord insurance policy is a recommended precaution for all landlords, regardless of whether you’re renting to a family member or not.
While it isn’t a legal requirement, your mortgage lender may insist on a valid buildings insurance policy before offering you a loan. When choosing your level of coverage, you should also consider what type of property you’re renting. For example, if it’s a furnished home, contents insurance could be a must.
Related: Financial planning for landlords: Budgeting and beyond
Tenancy agreements for family members
Tenancy agreements protect both the landlord’s and tenant’s rights in case of any disputes during or after the tenancy. This might seem like an unnecessary precaution if your tenants are family members, but a tenancy agreement is an essential document.
Your written agreement will outline the key terms of the tenancy such as how much rent will be paid and when. You should also have an inventory in place for full clarity.
Do I still need to protect a deposit if renting to family members?
As part of your tenancy agreement, you should also take a deposit and protect it in a government-back deposit scheme. This ensures that you can recover the costs of repairing your property if it is damaged, and your tenants will have the right to appeal.
The deposit protection scheme can act as an impartial third party in these instances, which could be invaluable when letting to family members.
Related: Why landlords are considering switching to a managed let
Can I charge discounted rent to a family member?
Charging your family members lower rent than the market rate could lead to issues with your mortgage lender. Most lenders will require your property’s monthly rent to cover at least 125% of your monthly mortgage payment, so if you plan on charging less, this may affect your buy-to-let mortgage affordability test.
When setting your rent, it should also be noted that rent paid by a family member is considered income, and therefore may be subject to income tax and national insurance.
Tenant screening
Whether you’re renting to your family or a stranger, a professional tenant screening process is essential.
At Parkers, we appreciate how important it is that your buy-to-let property is in safe hands, which is why we offer our landlords an industry leading tenant referencing process which verifies any information supplied by the tenants and highlights any potential issues, allowing you peace of mind.
Contact your local Parkers branch for more lettings advice
Further reading…
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