If you have ever looked into the option of buying a house to rent to a family member, you will know it’s not that easy. Even if you already have a buy-to-let property you can find that renting it to a relative is not an option due to the terms and conditions of your buy to let mortgage.
Mortgage lenders have never really been on board with ‘family’ buy-to-let, and new rules in 2016 meant that those that did offer them were even more restricted.
On top of that, there are now stricter requirements that made it more difficult for people to get a buy-to-let loan – with higher rent to mortgage ratios making it almost impossible to make it worth the lenders while.
Mansfield Building Society are the first lender to change all that and respond to the growing trend of parents looking to help their children get a house of their own – without falling victim to predatory landlords charging over the odds for rent, admin fees, ‘processing fees’ and all the rest.
Their new mortgage allows the borrower to charge a family tenant rent that is equal to their mortgage payment, which means it is a much more affordable option for parents to help their children.
In comparison, the amount of monthly rent typically required by buy-to-let mortgage lenders has been raised from 125% of mortgage payments to 145% on average.
The Mansfield Family Buy To Let Mortgage is sold at a discounted variable rate over three years set a 1.35% below their standard variable rate, so delivers a current pay rate of 4.25%. This means that if the base rate goes up, they would increase the standard variable rate and your mortgage repayments will increase.
To access the mortgage, you will need at least a 25% deposit and to pay a £199 application fee and a £1,800 completion fee.
The minimum available to borrow is £50,000 and the maximum amount is £500,000. You must also have a minimum income of at least £20,000 per year.
As the required rental income is 100% of the mortgage payments, you will also have to show that out of your income you would be able to pay a little bit more on the mortgage each month.
If you pay tax at the basic rate, you will have to show you earn enough to pay an extra 25% on top of the monthly mortgage payments if it rose to 2% over the pay rate – which is currently 6.24%. For those who pay a higher rate of tax it would be 45% extra.
This is because the Bank of England stipulates that buy-to-let lenders have to make sure that landlords are able to cover mortgage payments if interest rates were to increase in the next five years.
The mortgage is available for borrowers who want to rent to children, siblings and parents.
On launching the new mortgage, Mike Taylor from Mansfield Building Society said:
We’re launching this in response to identified trends which show the growing number of parents buying property for their offspring to live in – as well as the growing number of people buying property for their parents to live in.
With the housing market in a state of flux, this deal enables landlords, with sustainable uncommitted earnings, to support relatives without having to charge rental income over and above the mortgage payment just to meet a lender’s strict rental income calculations.
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