Mortgages.scot

A recent question posed an interesting question around BTL, it is something I have come across a number of times and in fact, would decline if it came across my desk for review. The question;

I bought my parent's council house when discounts were high and went to refinance recently, we approached two lenders and both declined our request. One just said ‘not suitable’ the other stated it was because my parents were tenants. Why is this such a big issue? They both have a pension, guaranteed income and always paid on time.

Thanks for the question, it is something I am very familiar with. There is a couple of points to this.

BTL Affordability

When applying for a BTL a lender will assess it on the basis you will have a tenant, a valid tenancy and evidence to support the rental income being enough to support affordability.

Now you may not have that if you have yet to purchase the property, in your case you already own it, but, if you did not the lender will rely on the valuer’s view of the rental income that can be expected and will likely condition the offer to ensure you provide a tenancy in due course.

In any event, a BTL is seen by the lender as having a commercial purpose. That is to make money.

Should you have a troublesome tenant the tenancy will allow for termination, a new tenant and so on.

BTL for family

The immediate issue with having parents live in the property or any close relative is that it becomes very difficult to treat a tenancy with them on the same basis you would a stranger.

If your parents regardless of their financial capacity today were to get into difficulties tomorrow, would you throw them out for not paying you rent? Maybe you would, most would struggle.

That in turn may then lead to difficulties for you maintaining the payments, potentially falling into arrears.

You may not even be intending or willing to charge your parents full rent.

These are all key reasons lenders are not keen on renting to your family.

BTL Regulation

Another aspect is regulation. Normally a BTL is an unregulated product. As it is not your home lenders view it differently. That is to say, if anything goes wrong you are not placing your own home at risk.

When a lender knows there will be family members living in the property they are likely going to treat it as a regulated mortgage as it puts close family members home at risk should something go wrong.

There are some products out there that can help though. There are a small number of lenders who will provide mortgages that are specifically designed to allow renting to family members.

More information on BTL regulation can be found on the FCA website.

Family BTL Products

There are some emerging products that are specifically aimed at renting to your family, including parents, children and other close relatives. These are known as Regulated Family BTL, in some cases Consumer BTL.

These are subjects on their own. I will be covering Consumer BTL in another post so be sure to search the blog for that as it may prove useful.

I do have a guide on BTL generally which may be of help to some.