Buy-to-Let
Regulated Buy-to-Let Mortgages: Letting to Family
A buy-to-let mortgage is regulated by the FCA if you, or a close family member, will live in the property. That usually means letting to your children, parents, siblings or grandparents. Fewer lenders offer it, and they assess your income more like a residential mortgage.
Written and reviewed by Davi Thakar, CeMAP qualified mortgage and protection adviser Updated
A buy-to-let mortgage is regulated by the FCA when you, or a close family member, will live in the property. In practice that usually means buying a home to let to your son, daughter, parent, brother or sister.
Most buy-to-let mortgages are unregulated, because the FCA treats letting to tenants as an investment. Once family moves in, the loan gets the same consumer protection as a mortgage on your own home, and the lender looks much harder at your personal income.
The most common case is a parent buying a flat for a son or daughter at university or starting out, and charging them rent. For the wider picture, see our complete buy-to-let mortgage guide.
When is a buy-to-let mortgage regulated?
When family will live there. A buy-to-let mortgage is regulated if at least 40% of the property is, or will be, lived in as a home by the borrower or a related person. That covers your partner, parents, grandparents, brothers, sisters, children and grandchildren. Letting only to unrelated tenants keeps it a standard, unregulated buy-to-let.
The test is set out in the FCA’s guidance on what counts as a regulated mortgage contract. A related person is your:
- spouse or civil partner, or someone you live with as a couple
- parent or grandparent
- brother or sister
- child or grandchild
Letting to a cousin, aunt, uncle, friend or your partner’s parents usually does not make it regulated, because they are not related persons under the rules.
Which situations do lenders see most?
These are illustrative situations, not Option Finance client outcomes.
A flat for a student
Parents buy near their daughter’s university and she lives there. Lenders assess the parents’ income as well as the rent.
Regulated, so plan for full affordability checksA home for a parent
You buy a smaller house for your mother to rent from you. She is a related person, so the loan is regulated.
Check your existing mortgage leaves roomLetting to a cousin
Your cousin will rent the property at a fair rent. Cousins are not related persons under the rules.
Usually a standard buy-to-letAn inherited house
You inherited a home, could not sell it and now let it out. You never set out to be a landlord.
May be consumer buy-to-letIllustration only
A couple buy a flat near their daughter’s university, she lives there and two friends pay rent for the other rooms. Because their daughter is a related person living in the property, the mortgage is likely to be regulated. If the flat were let only to the friends, it would be a standard unregulated buy-to-let.
What changes when a buy-to-let is regulated?
| Unregulated buy-to-let | Regulated buy-to-let | |
|---|---|---|
| Affordability | Mainly the rent | Your income and outgoings, like a residential mortgage, often with the rent counted |
| Advice | Not required | Must be advised or meet FCA rules |
| Protection | Limited | Financial Ombudsman Service, FCA rules on arrears and fair treatment |
| Number of lenders | Many | Fewer |
| Rates | Wide choice | Often similar to standard buy-to-let, sometimes higher |
Because affordability is based on your personal finances, a regulated buy-to-let can be harder to get if you already have a large mortgage on your own home. If something goes wrong later, you can take a complaint to the Financial Ombudsman Service once the lender has had its chance to respond.
What do lenders check on a regulated buy-to-let?
Expect the checks to feel closer to a residential mortgage than a normal buy-to-let:
- Your income, with payslips, accounts or tax returns, depending on how you earn.
- Your outgoings, including your own mortgage, loans and childcare.
- Bank statements, usually for the last three months.
- Who will live there, and what rent they will pay.
- Your deposit, where it comes from and whether any of it is a gift.
Some lenders count the family rent towards affordability. Others ignore it and rely on your income alone, so the same case can get very different answers.
Real client case: buying a home for his sister to rent
Our client wanted to buy an investment property that his sister would rent from him. Because a close family member would live there, it was a regulated buy-to-let, and the lender did not use a standard buy-to-let rental stress test. Instead it assessed his personal income with its standard affordability multiple, after taking his own residential mortgage into account. The mortgage completed.
What this shows: letting to family is judged on what you can afford, not what the rent covers. Your own mortgage and commitments come off first, so work out that figure before you look at properties.
What is consumer buy-to-let?
If you never set out to be a landlord, for example you inherited a property or could not sell your home and are now letting it, your mortgage may be a consumer buy-to-let. This is a lighter form of regulation for people letting in a non-business capacity. The FCA explains it in its guidance on the regulation of buy-to-let lending.
If you are moving out and letting your current home, you usually need either your lender’s consent to let or to switch to a buy-to-let mortgage. Letting without consent breaks your mortgage terms. See our guide to let to buy mortgages.
What mistakes should you avoid?
- Assuming any family member counts. Cousins, aunts and uncles do not.
- Letting family move into an unregulated buy-to-let without telling your lender. Your mortgage terms may require it.
- Forgetting your own mortgage. A regulated lender adds it to your outgoings.
- Buying in a limited company without checking the lender’s rules on letting to family. Many company lenders do not allow it.
Are there alternatives when helping family?
Buying a home for a child to live in is not the only way to help. Depending on your aims, a joint borrower sole proprietor mortgage, a gifted deposit or a Family Springboard mortgage may suit better, and can let the child keep first-time buyer benefits.
How is a regulated buy-to-let taxed?
The same tax rules apply as for any buy-to-let. In England and Northern Ireland the higher Stamp Duty rates usually apply if you already own a home. See GOV.UK’s guidance on buying an additional residential property. Any gain on sale is subject to Capital Gains Tax. See our buy-to-let tax guide and take advice from a tax adviser.
Frequently asked questions
What is a regulated buy-to-let mortgage?
A buy-to-let mortgage that is regulated by the FCA because you or a related person, such as a child or parent, will live in at least 40% of the property.
Who counts as a related person?
Your spouse, civil partner or partner you live with, parents, grandparents, brothers, sisters, children and grandchildren.
Can I buy a house for my son or daughter to rent?
Yes. If they live there, it will usually need a regulated buy-to-let mortgage, assessed partly on your own income.
Is letting to a cousin or friend regulated?
Usually not. Cousins, aunts, uncles and friends are not related persons, so a standard buy-to-let mortgage normally applies.
What is a consumer buy-to-let mortgage?
A lighter form of regulation for accidental landlords, such as people letting an inherited home or one they could not sell.
Are regulated buy-to-let rates higher?
Sometimes slightly, because fewer lenders offer them. Your deposit and circumstances matter more.
Do I have to charge my family member a market rent?
Not always. Some lenders accept a lower rent, but your own income then has to carry more of the affordability. Check the lender’s rules before you agree a rent.
Can I let to family through a limited company?
A loan to a company is generally outside mortgage regulation, but many company buy-to-let lenders do not allow lets to directors’ families. Check before you buy.
Speak to Option Finance about letting to family
Tell us who will live in the property and what you earn. We will tell you straight whether you need a regulated mortgage, which lenders are realistic and whether another route suits your family better.
Book a free initial consultation using the enquiry form below. See our buy-to-let mortgage advice, our let to buy guide and our guide to joint borrower sole proprietor mortgages.
Talk through your mortgage options
Tell us about your plans and circumstances. Your initial consultation is free.
Some buy-to-let and commercial mortgages are not regulated by the Financial Conduct Authority. Regulation depends on the mortgage type and circumstances.
Talk through your mortgage options
Tell us about your plans and circumstances. Your initial consultation is free.
Written and reviewed by Davi Thakar
Director & Senior Mortgage Broker
CeMAP Qualified Mortgage and Protection Adviser
Davi founded Option Finance with a vision to deliver transparent mortgage advice from a wide panel of lenders. With over 10 years in financial services, he specialises in complex cases including adverse credit, self-employed borrowers with limited trading history, and large buy-to-let portfolios. He works directly on complex cases and explains each option clearly.
Meet Davi Thakar
