If you are considering investing in a property with the intention of renting it to a family member you need to be weary of a few things.
It is likely at some point in our lives we have ‘borrowed’ money off a family member with the best intentions to pay it back. How many times have you delayed repaying the money? The delay could be caused by a number of ‘emergencies’, for example your car broke down or the newest smart-phone just came out and you must have it. There is a concern that the same principle could happen in renting out a property to a family member. They may not always pay their rent on time or worse keep up with the rental payments as agreed. You would be sticking your neck out for this family member and if they consistently do not pay their rent it could plunge you in to financial disarray. Draw up a tenancy agreement so all parties know where they stand but you need to ask yourself, can you look past the emotional attachment and enforce the rental agreement?
Now that bit is out of the way, on to the first major stumbling block, the mortgage. Although some do exist, the market for ‘family buy to let’ products is rather slim pickings. There are a very limited number of lenders offering these products, most of the lenders being smaller building societies. As such you will likely find yourself paying a high product/application fee and probably higher interest rates then available on standard buy to let products with high street lenders.
Many, if not all, of the lenders in the family buy to let market will require you to be a home owner occupier. In purchasing another property you need to be aware that you will be subject to the 3% additional stamp duty surcharge, this needs to be factored in when weighing up the cost versus the reward to establish if it is worthwhile doing.
When considering a ‘family buy to let’ you will need to remember also that you have the same obligations as a regular buy to let landlord. You need to ensure the property is well maintained and things like the gas safety check for example are kept up to date. Lastly you need to ensure you have the appropriate insurance in place. The insurers will need to know who the property is being let to.
Daniel Brown BSc (Hons), Cert SMP
26th February 2018