Q I have been approved for a buy-to-let mortgage. It has always been my intention not to live in the property. I live in London and am buying a property in my hometown further north. It now transpires that my brother would be happy to live in the property. I know family members are not allowed to be tenants as part of the terms and conditions of the mortgage. He will pay rent, but at a reduced rate. What are the consequences for me if we go ahead with this plan? AM
A If you breach the terms and conditions of your buy-to-let mortgage by letting the property to your brother (or any other close relative), your lender would be within its rights to demand full repayment of the loan. If you don’t tell your lender that a close family member is going to be your tenant, you would be committing mortgage fraud, which could also result in you being asked to repay the mortgage in full. Even if your lender did allow you to let to your brother, it might also take issue with him not paying a rent that covers 145% of the monthly mortgage payment, which would have been one of the requirement on which your mortgage application was approved.
The reason most buy-to-let lenders don’t allow you to let to close family members – which includes siblings, parents, grandparents, grandchildren and a spouse or civil partner – is that if they did, the sale of and advice on the mortgage would have to be regulated by the Financial Conduct Authority(FCA). This involves more work for the lender and a more detailed assessment of affordability as is required with normal FCA-regulated residential mortgages. So most but-to-let lenders offer only standard mortgages that are not regulated.
However, if you are determined to let your property to your brother, all is not lost. According to the independent whole-of-market mortgage adviser Niche Advice, while lenders offering regulated or “family” buy-to-let mortgages are are, they do exist. According to Which?, they include Virgin Money, Melton Mowbray, Furness and Mansfield building societies. Mansfield is unique in expecting rental income to cover the mortgage repayment by only 100%, although its other affordability requirements will have to be met as well. So you may need to look into switching lenders if you don’t want to risk being asked to repay your mortgage in full. Incidentally, if a cousin, aunt or uncle or other extended family had wanted to rent your property, you wouldn’t have been in breach of your mortgage terms and conditions.