Specialist buy-to-let mortgages:

Letting to family members

Letting a property to a family member may require a regulated residential mortgage rather than a conventional business buy-to-let product.

The intended occupants and their relationship to the borrower must be disclosed from the outset. Using an ordinary buy-to-let mortgage without the lender’s agreement could breach its conditions.

When does the mortgage become regulated?

For mortgage regulation, a “related person” includes the borrower’s:

  • Spouse, civil partner or partner living as a spouse

  • Parent or grandparent

  • Child or grandchild

  • Brother or sister

Where the borrower or a related person will occupy at least 40% of the property as their home, the loan can fall within regulated mortgage rules. Ordinary buy-to-let terms generally prevent occupation by the borrower or a related person.

See the FCA’s guidance on related persons here.

Cousins, aunts, uncles, nephews and nieces are not included within this particular regulatory definition. However, lenders can apply a broader definition of family or connected tenants within their own criteria.

A smaller lender market

Relatively few lenders offer regulated family buy-to-let mortgages. The lender will normally assess the borrower’s personal income and expenditure using residential affordability rules rather than relying principally on the rent.

Some lenders require the borrower to afford the mortgage without any rent from the family member. Others may consider the proposed rent but apply restrictions. Rates, fees, deposit requirements and available repayment methods can differ from ordinary buy-to-let mortgages.

Rent and occupation

The lender will want to know:

  • Who will occupy the property

  • Their relationship to the borrower

  • Whether rent will be charged

  • Whether it will be at or below market level

  • The proposed tenancy arrangements

  • Whether the borrower may also use the property

  • How payments would be maintained if the tenant stopped paying

A reduced family rent may not satisfy an ordinary buy-to-let rental calculation. The valuer may report the open-market rent, but the lender does not necessarily use that figure where the actual arrangement is different.

The borrower also remains a landlord. Relevant tenancy, safety, licensing, tax and insurance obligations can still apply when the tenant is a relative.

Limited-company ownership

Letting to family through a limited company is unlikely to provide a viable mortgage route.

Regulated family buy-to-let mortgages are ordinarily available to individuals and assessed using residential affordability. Limited-company mortgages are designed for business investment properties let to independent tenants.

Limited-company lenders commonly prohibit occupation by directors, shareholders or their relatives. A company structure does not therefore turn a family let into an acceptable conventional buy-to-let arrangement.

Where a company already owns the property, family occupation must be discussed with the lender before any tenancy or informal arrangement begins.

Establishing the position early

Someone buying specifically to provide a home for a close relative will normally need to borrow personally using an appropriate regulated family buy-to-let mortgage.

Family occupation can affect regulation, affordability, ownership structure and lender choice. An experienced regulated mortgage broker should establish the complete arrangements before a property is purchased or occupied. Legal and tax advice may also be required.