Renting property to family members: Should I do it?
On the face of it, letting property to a member of your own family might seem like a no-brainer: they are people you know and (hopefully) trust; the money stays in the family; and your relative – be that sibling, child, parent, cousin or otherwise – has the security of a decent landlord who won’t cheat them or treat them badly. Well that’s the theory at least.
The problems this may cause
The main risk with letting your property to a member of your own family is that the transaction no longer becomes a straightforward business proposition and becomes muddied by the relationship between the two parties. “Family ties can cloud judgment. Landlords may feel pressured to offer lower rents which could affect the profitability of the business and their ability to raise finance,” says Richard Blanco, NLA’s London representative.
Difficult family dynamics could also get ‘acted out’ in the rental relationship, he adds. Resentments might result in the family tenant not looking after the property, failing to pay rent, or even testing the relationship to see if the landlord would really take action against their own family member.
As a completely separate issue, standard Buy to Let mortgages don’t allow you to rent out your property to a family member, and you will instead need to find a ‘regulated buy-to-let’ or ‘family buy-to-let’ loan. This restriction applies only to close family – siblings, parents, children, grandparents, grandchildren or a spouse or civil partner. The reason is that BTL mortgages are treated as an investment and are not regulated by the Financial Conduct Authority; the value of the loan is based on the expected income from the property. If you are letting to a family member there is considered to be a risk that you will not receive the market rental income from the property, so the loan has to be assessed – like a homeowner’s mortgage – on the basis of your overall income and outgoings. If you already have a standard BTL mortgage, you are not allowed to let the property to close family members.
The perks of renting to family
One of the main advantages of renting to family members is the ability to help out one of your family who can’t find a suitable place otherwise. For example, if you have a child who’s a student in a town where accommodation is in short supply, you could buy a property to ensure they have a decent place to live. Or if someone in your family has a disability you could make sure the property is fully adapted for their needs. You do need to establish that they won’t lose any entitlement to benefits by renting from you.
Renting to family in practice
The biggest mistake when you’re renting to a family member is to keep the arrangement completely informal. If you haven’t discussed the terms in detail and put them down in writing, there is far more potential for the arrangement to go sour – and when it’s a member of your own family it can be far harder to resolve any dispute. Richard Blanco suggests you should use all the same documents on policies, payments, repairs etc that you would with any other tenant, and even carry out a credit check, so that you are fully aware of the situation. Issue a tenancy agreement and record the inventory in the usual way, so that there are no misunderstandings or disputes about what has been agreed. “Think long and hard about renting to family members,” says Blanco. “You need to really know yourself, understand your family dynamic and possibly be very skilled to cope with some of the difficulties that can emerge when mixing family and business.”