It’s not unheard of for property owners to let to a family member, most commonly their son or daughter. However, without a written lease agreement in place, you are technically not letting the property and so you will not be able to get landlord insurance. However, a basic lease agreement template can be obtained easily online or from a shop such as WHSmith for the small price of around £10 to £20, and lease agreements do not require any rental payment to be included in the agreement. By ensuring that even a basic lease agreement is officialised and in place, purchasing the correct insurance for the property will be a lot easier.
Do I Need Landlord Insurance to Let my Property to a Family Member?
If you want to insure the property, then yes. And it is always recommended that landlords insure their property investments. Put simply: if you are letting your property, then it will not be covered by your existing buildings insurance.
You may not consider yourself a landlord when letting to your children or other members of your family, but legally you are. This also means that you have the legal obligations of every other landlord, such as providing gas safety certificates. Even if there is no written agreement in place (and just a verbal agreement), if you are receiving any kind of rent payment then you have an assured shorthold tenancy. This isn’t required to be in writing (though for your protection, it is advised that you do), and as a landlord it doesn’t matter whether you’re letting to a complete stranger or your own son.
If your family member, however, does not contribute any rent money then some home insurers actually do cover members of immediate family living in your house without you yourself occupying it. (This scenario cannot be defined as a “let”, as there is no rent involved, so it would just be residential cover.) But the moment that there is any exchange of money, then it becomes a commercial interest and you become a landlord and will need to treat it as a business, declaring your rental income to HMRC and following the legal procedures.
The Growing Number of Parent Landlords
The latest research conducted by the Post Office Money Mortgages reveal that there are 730,000 “parent landlords” in the United Kingdom, but they project that that figure will reach 1.4 million following the current economic uncertainty in this country.
John Willcock, Post Office Money Mortgages, explains:
As both the cost of renting and buying a property increases, home ownership remains a distant dream for a significant number of today’s younger generation. With many parents wanting to do as much as they can to help their children, this is a challenge that affects the whole family.
Our research shows that an increasing number of parents are considering buy-to-let both as a means of helping their children, and of securing their own financial future. By becoming a ‘parent landlord’ they are able to provide this support – without necessarily having to compromise on their own space at home.
This not only provides their children with the opportunity to save for the future, but can act as an investment can help with their on long-term financial planning.
A quarter of parent landlords state their second home which they are letting to their child is primarily an investment for their own financial future, and it’s purely incidental that they are letting the property to their child. On the other hand, 27% believe that letting to their child is a way to ensure that their child is provided with a safe home, with 21% still wanting to support their child but wanting their child to move out of the family home. 24% of parent landlords wanted to keep their children close by, and the same number of parent landlords admit that they would like to help their children save money.
The Benefits of Letting to Family
The main beneficiary of the arrangement is, of course, the family member. In the Post Office’s research, they found that 19 in 20 charge their children less rent than market rates, and almost a third allow their children to simply pay “what they can afford” with 1 in 10 even covering their child’s household bills.
Letting to family, or becoming a parent landlord, can give you some ease of mind in trusting and knowing your tenant on a closer, more personal level. You can help to support your family and be closer to them.
The Problem with Letting to Family
It may seem like a casual arrangement. Your son has returned from working hard at university, and you want to support him by providing cheap accommodation allowing him to get his footing firmly on the job ladder and save up some money of his own. But if the property is on a buy to let mortgage, you should be aware of the fact that many lenders require you to charge a minimum amount of rent (e.g. 125%) based on your monthly mortgage costs.
There is also the worry that when renting to family members or your own children, you will be taken advantage of. Within the Post Office Money Mortgages’ study, 1 in 3 parent landlords show concerns that, due to lack of a formal landlord-tenant relationship, there will be disputes over rent and a quarter of parent landlords worry over the condition of the property if the child doesn’t take care of it.
Having mum or dad (or sister or brother!) as a landlord can mean the difference between ensuring you prioritise your rent payment over this month’s unexpectedly high bill, or even leaving the rent payments for a couple of months because you’re saving up for a holiday. You need to make sure that your tenant doesn’t take advantage of the situation, and make sure that the agreement is formalised as it would be with any other tenant. 42% of children expect to pay less in rent, whilst 38% expect you to assist them with any problems with the property. There is nothing wrong with this so long as it is mutually agreed beforehand in writing.
A lot of disputes that arise from letting to family members are caused by others eventually moving in with them. Whether it’s their boyfriend, girlfriend or best friend, you might not have planned for someone else to be moving in when you made the decision to let the property to your family member. Many of the arguments when family members become landlord and tenant stem from personal expectations and miscommunication. This is why you should always get everything in writing and signed. Otherwise your generous offer of letting to your daughter at a discounted rate may end up with her moving her boyfriend in, them breaking up and the ex remaining in the property.