Renting property can be stressful. It can be tempting to simply rent to family or friends to make sure you have a positive relationship with your tenants. However, this article will outline some important aspects to this, including making sure you stay on the right side of the law.
While not illegal, you must have the right mortgage in place to rent in the first place. You must also be aware that some mortgage lenders see renting to family as a higher risk buy-to-let mortgage than letting to non-family and they may apply different lending criteria.
This is because even though you may trust a family member more than other tenants, you may then charge them less than the market rent and be more lenient if they turn out not to be a good tenant, affecting your income from the property. The best advice is to speak to your lender about the criteria for renting to family before you make any promises to a family member.
You are still subject to the same rules and responsibilities as any landlord, which we will go through in more detail below.
As mentioned above, this is one of the reasons some lenders do not approve buy-to-let mortgages for family members without specific wording in your mortgage documents.
As the Mortgage Advice Bureau outlines:
“If you’re seeking a buy-to-let mortgage for your investment property, the lender is likely to require you to charge rent at 125% or higher than the monthly mortgage costs, so it may not be possible for you to give your friends or family a discount or let them live in the property for free”
From a personal perspective, it can also complicate matters if you discount rent, but have to raise it later. Family relationships can become strained if money is involved, so it may be best to stick to the usual route of having tenants you do not know.
Yes, you should still enter into a tenancy agreement so you can agree on the terms of the tenancy in writing and you know what is expected from each other.
Your agreement will make sure you have outlined things like how much rent should be paid and when and if you allow pets in the property. It should cover as much as possible to avoid disagreements later. You should also have an inventory in place.
As part of your tenancy agreement, a deposit should also be taken, but you must protect it in one of three government-backed deposit schemes (we have a complete guide to this here). This makes it easier for tenants to get their deposit back if they have stuck to the terms of the agreement. Due to the Tenant Fees Act of 2019, there are some things that you can no longer charge a tenant, so be aware of this too. Read about the Tenant Fees Act.
Tenant referencing may not be necessary if it is a family member, but if you still wish to do this be aware it includes a credit check.
You can rent to a family member on housing benefit or universal credit as long as you don’t live with them and you have a formal agreement. Although not a pleasant topic, it’s wise to discuss with your family member what would happen to the property if you died as this could mean they have to move out.
Read: A landlord’s guide to Universal Credit
All landlords must pay income tax on the rent minus any expenses. In fact, there are a few different tax implications for landlords, so it’s best to read up on them here.
At haart, we know you’re busy, so work to support you through our property management services, and in-branch advice. Get in touch with your local haart branch for a chat through your options as a landlord and how haart can help you.
Just getting started? See our top tips for landlords and check what your rights and responsibilities will be.
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