How should I insure a property that I let to a family member?

If you rent a property to a family member, it’s tempting to be relaxed about the paperwork. After all, it’s not like renting to a stranger, is it? Well yes, it is – or at least it should be. Here’s what you need to know.

Helen Phipps

Insurance expert

minute read

Do you know someone who could benefit from this article?

Last Updated 2 NOVEMBER 2022

What insurance do I need if I’m renting to a family member?

Regardless of who’s renting your property, it makes sense to have landlord insurance with rental protection cover in place.

Landlord insurance is similar to regular home insurance in some respects. The buildings insurance element will be much the same. However, landlord insurance can also potentially cover you if, for example, a tenant hurts themselves in your property or they don’t pay the rent. It can give you the security of knowing that you’re covered if things don’t go to plan.

What does landlord insurance cover?

Buildings insurance
Contents cover
Loss of rent
Damage or theft by tenants
Legal action
Public liability
Squatter eviction.

While we’d hope you won’t need many of these if you’re letting to a family member, you never know – so the right insurance is well worth having.

Do I need a buy-to-let mortgage?

If you’re buying a property to rent out, you’ll need a buy-to-let mortgage (that’s assuming you can’t buy it outright). If you’re planning to let the property to a family member, you’ll need to check your mortgage terms – many standard buy-to-let mortgages won’t let you rent to family members. Others lay down certain conditions, such as insisting there are other tenants in the property as well.

Do I need to tell my mortgage provider I’m renting out my home?

Yes, if you have a residential mortgage rather than a buy-to-let mortgage, you’ll need to let your mortgage provider know you’re letting the property, or you could be breaching the terms of your mortgage contract. If your mortgage provider finds out, they may charge you higher fees or interest payments, or even make you repay your mortgage in full.

If the property you’re renting out is your own home, you’ll need to contact your mortgage provider and ask for something called a consent to let.

Do I need a family buy-to-let mortgage?

If you’re letting your property to an immediate family member, you may need a specialist family buy-to-let mortgage. These are often more highly regulated than regular buy-to-let mortgages. This is because mortgage providers see renting to family members as higher risk – it’s more likely you’ll be a lenient landlord and let them get away with paying less rent.

What’s the legal definition of an immediate family member?

When it comes to mortgages, children, brothers, sisters, parents or grandparents may be classed as immediate family members. You may need a family buy-to-let mortgage if you’re letting to any of these. If the family member is a cousin, uncle, or aunt, you may get away with a standard buy-to-let mortgage. You’ll need to check with your mortgage provider to be sure.

Do I need a tenancy agreement when renting property to a family member?

Yes - most experts would recommend you have a tenancy agreement of some kind.

It may be tempting not to bother, but things can and do go wrong in family situations. There can be a lot of politics, with money lying at the heart of many squabbles.

A tenancy agreement will make both of your obligations as landlord and tenant absolutely clear, which can help avoid arguments down the line.

Will I have to pay tax on my rental income?

If you rent out a property, you’ll likely have to pay tax.

The first £1,000 of your property income is tax-free. If you earn more than that, you’ll have to report it to HMRC.

What else do I need to think about when letting to a family member?

It’s wise to bear in mind the following:

You’ll be liable for tax
You may be obliged to charge a certain level of rent – if you have a buy-to-let mortgage, you may be required to charge 125% or more of the monthly payment
you’ll still need to meet health and safety regs – that means getting your annual gas safety check and Energy Performance Certificate, as well as having smoke alarms and carbon monoxide detectors fitted. It also means the property must be warm and free from damp and leaks

You still have responsibilities as a landlord, even if your tenants are family. That means you can’t ask them to overlook issues with the property in exchange for cheap rent. But being a landlord remains a great way to make money – in 2021, the average monthly rent was £1,450 in London, while the median monthly rent was £795 for the UK as a whole.