Family comes first
Paul Lewis (pictured) is national development manager at Mansfield Building Society
For many first-time buyers, getting onto the first rung of the property ladder has become something of a team endeavour.
It’s not just a case of what the individual can bring in terms of deposit or mortgage affordability, but increasingly it’s about having the backing of family in order to help them make that first purchase, whether that might be through a gifted deposit, setting aside savings, or a guarantor arrangement.
We hear a lot in the mortgage market about family support for individuals looking to purchase homes but perhaps less so around family support in the buy-to-let/private rental space.
There is however an underlying demand from landlords who might wish to house family members within their rental property and are not just looking at the ways they can finance such a purchase, and the investment potential, but, in a number of these cases, they’re considering how they might approach securing a property in which a family member might comfortably live.
After all, when it comes to what we describe as ‘family buy-to-let’, we might expect that the decision-making process around purchasing such a rental property would be slightly different.
It might not all be about rental income, or indeed capital-growth potential, instead it might be much more about the location – perhaps the borrower wants the family member to live close to them.
Or it might be around the format of the property – if it’s an older relative, then a three-story house with lots of stairs might not be the best option for them (despite this offering the best yield for their money), and they might instead be looking for a bungalow or a property which is laid out far more conveniently for their relative’s needs.
For some lenders, taking away this rental yield/capital growth decision results in it being a very tricky lending decision. Indeed, we are one of the few lenders offering family buy-to-let and advisers will know this is a fully-regulated area of the market.
We also believe it is an important part of the buy-to-let sector and indeed we (and advisers) are likely to see a growth in demand for it. What we need to ensure is that we have an individual and flexible approach to lending in order to accommodate some of the circumstances that I’ve listed above.
For instance, would the borrower want to charge the ‘going rate’ rent for their family member tenant? In many cases they would not and therefore we have to ensure our criteria reflects that.
For family buy-to-let cases, if there is sufficient background personal income, The Mansfield can accommodate scenarios where the rental income only covers the monthly interest-only mortgage payment rather than the higher calculation lenders typically employ for investment buy-to-let products.
The reason we employ ‘top slicing’ arrangements for such borrowers is because this allows us to lend to these individuals and, at the same time, means we are meeting our affordability criteria and our responsible lending commitments. Indeed, having background income is important because, if the borrower is only receiving the same rent as the mortgage payment each month, we need to know they have the money to meet all other commitments that come with having a rental property, and that they can also cover the mortgage should there be any void periods.
It’s a common sense approach and one that recognises that when it comes to family, borrowers are likely to be looking at this particular rental property/decision in a slightly different way. ‘Family comes first’ as the saying goes and it’s important as lenders that we reflect that and shape our product and criteria offering accordingly.