Remortgage Buy to let for family member

wivellj

Hi All,

I am currently coming up to the end of my current mortgage deal, I am starting to look at different mortgages available, however, the mortgage I am looking at is for a property in which I rent out to my sister and her husband, as it is a family member I have been told that I do not have to have the mortgage as a buy to let mortgage is this true?

I do not make any money on the property as they just pay the mortgage payment each month, I myself is currently in rented accomodation and do not have another mortgage except for this one.

Thanks for your help

Meeper

If you have a rental property which is occupied by family members, different legislation applies and it potentially changes from being a non-regulated mortgage to a regulated one (BTL's are currently not regulated by the FSA). This is not a simple area and every lender will have a different response. Does your existing lender know that you are renting to immediate family?

wivellj

I originally moved into the property when I got the mortgage and lived their for a year, I then relocated and my sister started to rent the property, I notified the lender and changed this to a BTL mortgage, I cannot remember if I told them it was to my sister or not, if they asked me if it was to immediate family i would of said yes.

I recently went into Natwest and was told that I didnt need a BTL mortgage as the property was being rented out by immediate family, am I right in saying then that if I went into another bank the answer could be different?

Thanks

kingstreet

IMHO if you want the mortgage based only on the rental income generated by the property and not based on your income, I can't see any other choice but to use a BTL product.

Meeper is right in what he says that property which is 40%+ occupied by, or rented to, family members is regulated, where a full BTL isn't at this time.

I'm trying to see where this directly impacts on you. The regulation issue applies to those advising on and selling mortgages as the procedures are different.

A normal residential product would require you to declare you intend to live in the property on, or close after completion. You can't really make that declaration with good conscience.

Using a BTL product might make it easier for you to go the interest-only route, as most BTL borrowers choose this for tax purposes. Capital repayments can't be offset against expenses such as interest, or repairs, in reducing any potential tax liability, so most don't pay them; preferring instead to repay the mortgage out of the sale proceeds at a later date.

As the property isn't owner-occupied, the buildings insurance won't be standard either.

Interesting one. I'd like to see other opinions on this.

cinnamon71

I'm doing something similar myself at the moment, and after speaking to various lenders/brokers it comes down to the following:

You can apply for either a buy-to-let mortgage (which would be regulated) or for a residential mortgage for a second home/holiday home.

As you are letting to a family member, even on a buy-to-let, lending would be based on income & affordability, rather than solely on the rental income.

Given the above, the only real advantages for going the buy-to-let route are
a) If you wanted to let to a non-family member if/when your sister moves out. If that's likely to happen in the next couple of years then going for a buy-to-let now would save you another remortgage futher down the line.
b) It's easier to get a interest only mortgage with a buy-to-let than residential, although this does seem to be changing.

The big disadvantages of the buy-to let over a residential are of course the high fees & higher interest rates.

And yes I'm afraid the lenders do have different policies on this so there's a lot of phoning around to do.

The insurers though do seem to be a lot more consistent - if you don't live there and someone pays you rent then its commercial regardless of their relationship to you so landlords building insurance required.

Hope this helps.