Regulated Buy to Let Mortgage: Renting to Family the Right Way
If you’re considering renting out a property to a close family member, a standard buy-to-let mortgage may not be suitable.
Instead, you may need a regulated buy-to-let mortgage, also known as a family buy-to-let mortgage.
These mortgages are designed for landlords who plan to let their property to a relative, ensuring that the arrangement meets financial regulations.
Regulated buy-to-let mortgages differ from conventional buy-to-let loans because they are subject to stricter criteria, typically requiring a deeper affordability assessment.
Understanding these requirements is essential to securing the right mortgage for your needs.
What is a Regulated Buy-to-Let Mortgage?
A regulated buy-to-let mortgage is a specialist mortgage that allows landlords to rent out their property to an immediate family member.
Unlike standard buy-to-let mortgages, which are not regulated by the Financial Conduct Authority (FCA), a regulated buy-to-let mortgage falls under FCA regulation, offering additional consumer protection. Traditional buy to let mortgages do not allow the letting of the property to family members.
Key Differences Between Standard and Regulated Buy-to-Let Mortgages
| Feature | Standard Buy-to-Let | Regulated Buy-to-Let |
|---|---|---|
| FCA Regulation | Not regulated | Regulated |
| Rental Income Consideration | Based on projected rental income | Based on personal income and affordability |
| Deposit Requirement | Typically 25% | May require a higher deposit |
| Who Can Rent? | Any tenant besides family | Close family members |
| Borrower Occupancy | Borrower cannot live in the property | Borrower may live in the property alongside a tenant |
Find out Your Options
Who Needs a Regulated Buy-to-Let Mortgage?
A regulated buy-to-let mortgage is required if you intend to rent out a property to a close family member who will occupy more than 40% of the property. Family members typically include:
- Parents
- Children
- Siblings
- Grandparents
If the property is being rented to extended family such as aunts, uncles, or cousins, a standard buy-to-let mortgage may still be suitable. However, it’s important to be upfront with your lender to avoid complications later, so speak with your mortgage adviser when you are planning to take a mortgage of this sort.
Why Do Lenders View Regulated Buy-to-Let as Riskier?
Lenders often consider regulated buy-to-let mortgages higher risk because:
- Rental payments may be lower – landlords may offer discounted rent to family members, reducing the expected rental yield.
- Missed payments may not be enforced – family members may be less likely to enforce late rent payments or eviction of the tenant, increasing lender risk.
- Affordability is assessed differently – instead of focusing on rental income, lenders often consider your personal income, making it harder to qualify. This is not always the case so speak with an adviser.
Because of these risks, fewer lenders offer regulated buy-to-let mortgages, and those that do often require a higher deposit and stricter affordability checks.
Eligibility Criteria for a Regulated Buy-to-Let Mortgage
Lenders have specific requirements for regulated buy-to-let mortgages. Some common criteria include:
- Age requirement – Typically, applicants must be between 25 and 75 years old depending on the lender.
- Personal income assessment – You are likely to need to earn at least £25,000 per year outside of rental income.
- Deposit requirements – Most lenders require a 25% to 40% deposit depending on criteria and expected rent.
- Loan term limitations – Many lenders cap the term at 25 years.
What Happens if You Have the Wrong Mortgage Type?
If you rent to a family member under a standard buy-to-let mortgage without informing your lender, you may be breaching your mortgage terms. This can lead to:
- The lender demanding immediate repayment of the loan which may mean selling the property if you can’t refinance.
- Difficulties remortgaging or applying for further credit in the future, or the lender leaving you on their standard variable rate at a high cost.
If your circumstances change (for example, if your tenant is no longer a family member), you may be able to switch to a standard buy-to-let mortgage. Speaking with a mortgage broker ensures you remain compliant with lender requirements.
How Kerr & Watson Can Help
Applying for a regulated buy-to-let mortgage can be complex, especially since fewer lenders offer these products.
At Kerr & Watson, we specialise in finding tailored mortgage solutions to fit your circumstances. Here’s how we can assist you:
- Identify suitable lenders – We work with lenders who offer regulated buy-to-let mortgages and can match you with the right option. We also work with the standard buy to let lenders so we can assess what is most suitable for you.
- Streamline the application process – We help you gather the necessary documents prior to your application, which helps towards a smoother application process.
- Assess your affordability – Our team will review your income and advise you on the best approach to meet lender criteria.
Conclusion
A regulated buy-to-let mortgage is essential if you plan to rent out a property to a close family member who will occupy a significant portion of the home.
Since these mortgages are subject to FCA regulations and stricter affordability checks, they can be more challenging to secure than standard buy-to-let loans.
Working with a mortgage broker like Kerr & Watson ensures you find the right lender and the best possible deal for your individual circumstances.
If you’re considering applying for a regulated buy-to-let mortgage, contact us today for advice.
