Investing in a property for a family member to live in might sound like a great idea, but does it really make financial sense?
If your child is moving to university or you're helping an elderly relative downsize, you might have considered buying a property yourself and renting it out to them - perhaps for a little less than you could get on the open market.
Family buy-to-let can be the right option for some people, but there's a web of mortgage and taxation complexities you'll need to navigate first, as we explain below.
If you're looking to rent a home out to a family member, you won't be able to get a standard buy-to-let mortgage.
This is primarily because most people operating a family buy-to-let won't charge their relative the full market rate to live in the property.
This makes the investment more dangerous for the borrower (especially if they have a small deposit) and, in turn, for the lender putting up the cash.
When you invest in a standard buy-to-let property, your mortgage won't be regulated by the Financial Conduct Association (FCA).
This means you'll instead be applying for what's commonly known as a 'regulated' buy-to-let mortgage.
As you could be letting for below market value, some lenders will require you to prove you'll have sufficient income to pay the mortgage without taking the rent payments into account.
Virgin Money, Melton Mowbray Building Society and Furness Building Society all accept family buy-to-let applications, and you may also find that some building societies will consider applications on a case-by-case basis.
If you're considering a regulated buy-to-let mortgage, it can help to speak to a mortgage adviser, who will be able to find the right lender and deal for your circumstances.
The deal allows landlords to let a property to a close family member with an interest cover ratio of just 100%, meaning the rental income only needs to cover the full mortgage payments, without requiring more on top.
This product also allows landlords to use their earnings to cover the shortfall if they let the property for below market value.
A year on, Mansfield still offers two-year and three-year discount mortgages as part of its Family Buy To Let offering.
One of the biggest barriers to investing in family buy-to-let are the tax implications.
This can result in a substantial outlay. For example, a buy-to-let property costing £275,000 would be subject to a £12,000 stamp duty bill.
Finally, you may find it difficult to claim for all expenses on a property let to a family member, as you could struggle to prove it's being let 'wholly for business purposes' if the rent you're receiving is significantly below market rates.
In truth, student property investment can be a risky business and, if you're thinking of letting to your child and their fellow students, it's even more complicated.
That's because while letting a property to a group of unrelated students will help you meet your mortgage payments (and perhaps enjoy a good rental yield), there are a series of obligations you'll need to adhere to:
If you're letting to your own child, however, the emotional stakes will be much higher, especially if you're putting a financial burden on yourself by doing so.