When is family not family for BuyToLet mortgage purposes?

by Neil Patterson

9:18 AM, 24th July 2012
About 7 years ago

When is family not family for BuyToLet mortgage purposes?

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When is family not family for BuyToLet mortgage purposes?

I received an email today from one of the Financial Advisers we have a close working relationship with. I’ve decided to share it with you on the basis that we know several people invest into BuyToLet properties with a view to letting them to family members.

Good morning

I was asked by one of my clients last week whether he could buy a property to let out and rent it to his niece. That should have been a fairly straightforward question to answer with my knowledge and experience, but I had a niggle at the back of my mind so I thought I would check it out …. and what a mix of answers I got!

I sent the ‘letting to a family member’ query to a number of BuyToLet and specialist lenders and it’s confusing how they all see this same issue differently. For example, The Mortgage Works say “TMW are more than happy to provide a BuyToLet mortgage for a family member, yes this will make it a regulated loan and there is a tick box on the online application to confirm this. TMW offer the same rates and criteria and the only difference you should see is that there will be a special condition on the offer letter confirming the mortgage is regulated.”

Aldermore Bank say “unfortunately we won’t consider any family member for tenancy on our BuyToLet product range.” The person I spoke to went on to say ” I must admit, I’m unsure personally what the definition of ‘immediate family’ is as far as the FSA regulation is concerned, but our policy is that we can’t accept ‘any’ family members” (!!)

I also sent the query to our compliance department and they replied as follows;

“We have referred to the FSA glossary to answer your query – The definition of a ‘regulated mortgage contract’ makes reference to the following:

• a spouse or civil partner,

• a person (whether or not of the opposite sex) whose relationship with that person has the characteristics of the relationship between husband and wife; or

• a person’s parent, brother, sister, child, grandparent or grandchild

It therefore follows that the examples you have identified fall outside this definition.”

Abbey agree with the FSA completely. To add to the confusion though, even the FSA’s own BuyToLet leaflet isn’t specific at all (they just say ‘family member’ hence why I had to ask the main providers and compliance officers for their own interpretation.

Yet another reason why clients need ‘face to face’ advice – even today’s ‘Treating Customers Fairly’ / transparent world is still full of idiosyncrasies, confusion and ‘left hand not knowing what the right hand is doing’, even amongst the regulators and providers too.

In summary though – yes, I have found lenders (eg TMW, Abbey etc) who would provide BuyToLet mortgages to investors who wish to rent out to nieces (and you could include nephews, cousins, aunts and uncles), without any problem (subject to credit status, valuation etc, of course!) and as an FSA regulated adviser of course I have access to all options to help Clients set up their arrangements ‘properly’.

I wonder though how many un/mis-advised deals are in situ but fall foul of the rules?!

Thought you might find this to be of interest.

Best regards – Howard

If you have a borrowing requirement and would prefer face to face advice on the whole of the market please contact me and I will put you in touch with a Broker / Financial Adviser who is also a landlord. There are two ways to reach me; telephone Neil patterson on 01603 489118 or email npatterson@property118.com



Comments

Rippedoff Investor

11:29 AM, 31st July 2012
About 7 years ago

One thing to bear in mind is the tax side of Buy To let for relatives.If the rent is not the market rent you may only offfset expenses up to the level of income i.e. you cannot run the property at a loss and offset the loss against other properties in your portfolio. Bill Patey

17:40 PM, 31st July 2012
About 7 years ago

Another issue which could cause concern is what happens if they end up on LHA.
I am completing a LHA form and it asks what if any relationship you would have with the LL.
Possibly LHA might not pay out.
I don't know why they ask the question.
But it is worth finding out from the council as to whether they would pay LHA to a tenat who is related to the LL.
Better safe than sorry!!

8:11 AM, 3rd August 2012
About 7 years ago

Yeh, if they end up on Housing Benefit & it is your only house u rent out, HB may may not pay anyything towards the rent. You have more chance if u have other houses u rent out, so can show HB u r running it as a business, & would charge rent whoever it is for that house. If it's your only house, HB like to say 'It's your family member & if they was working, u wouldn't charge them'. Gets a bit complicated which u would have to try to win at appeal.


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