AIBU to worry my parents are undercharging rent on their flat?

You can't compare the rent for a family to student rent, student rent is far more.

They’ll also need to think about what they’re including. There will be significant wear and tear, particularly on white goods such as the washing machine and dishwasher, from a family of seven, so will they let it furnished/partially furnished/unfurnished? No matter how careful they are, a large family will put much more pressure on furniture, carpets, fixtures and fittings, wall coverings, etc. so are they prepared to replace those regularly?

LHA via Universal Credit.

As a landlord I have some tenants paying below market rent, but they are good, long term tenants and it works well for both of us.
I think that is a very different situation to starting off a tenancy on a less than commercial basis.
As far as I know LHA only covers rents on 4 bedroom properties, so they are letting their 5 bedroom flat for a cost within the lower 30% rate of local 4 bedroom places.
I would not be so concerned about the less than commercial rent than I would be at letting to friends. Some of the worst cases I have heard of of tenancies tenancies going wrong have involved letting to ‘friends’
The family might be lovely, need a new home through absolutely no fault of their own, and make excellent tenants, but the potential for this to go wrong is high.
The wear and tear could be huge, they might face extra expenses to make the flat safe for children.
If they do get to the stage of needing to sell they will likely need to take the matter to court as even if the family is willing to leave there will be no other properties in their budget.
As a landlord of 15+ years I would not recommend starting to let out a property. I won’t be giving any of my tenants notices to quit but if any choose to leave for their own purposes I will be selling rather than re letting.

Nothing indicates they’re being exploited. It sounds like a good arrangement for them and the tenants.

Greedy bastard

I would strongly advise your parents to turn the whole thing over to a local rental agent, particularly if they’re not living nearby. They’ll pay 10-12% of the rental income in fees but a good agency is worth every penny. They can organise repairs, make sure the flat is compliant with current legislation (have your parents got wired smoke alarms in every room? Fire doors? Gas safety certificate? Legionella certificate?). Are they registered as landlords with their local council? Who will be responsible for bills/council tax/buildings insurance/service charge, etc. Just handing over the flat in an ‘unsafe’ state and then letting tenants make their own repairs could land your parents in all sorts of very hot and unpleasant water.

A good landlord has a legal responsibility to keep their tenants safe, comply with the law, and maintain their property. It’s not cheap and it’s not easy money. If they’re renting out at half the market value they may well not even be covering their costs, and what if they do want to return in a few years - how on earth will they kick out a family with four children? That could become a drawn out and costly endeavour, not to mention the cost of the friendship.

It’s one thing letting friends stay in your house while you’re away for a few weeks over the summer. It’s quite another to rent your home to them securely and legally. Your parents really need to look at this carefully.

I'd stay out of it.

From their point of view, where else will they get tenants they know and trust?

If you can't answer that with a viable alternative, then there is your answer.

They've priced to suit their circumstances.

How are they being exploited when it is your parents who have set the rent? It's really nothing to do with you.

My 3 bed terrace with house and garden is £850 well below market rate. We've been here 13 years, never missed a payment and don't hassle the landlord. He would much rather have a steady long term tennant than someone that leaves after a year.

£1650 is a lot of money and I imagine your parents feel the same about keeping a tennant long term as my LL does.

You shouldn’t rent to friends or relatives in case things go wrong and they can’t pay the rent (or damage the house) as it’s v difficult then.
Perhaps they could speak to a solicitor to ‘check out’ the issues if this happens as they will be more likely to believe what they say then listen to you.
I would say it’s not a good thing to take on lightly. I rented out a property through an agent and even that was a pain - mainly as their plumber etc wasn’t great and I didn’t know enough to call them out.

Yanbu to worry as they sound very naive about all the legal and tax rules. Before RR it was bad enough- now with RR as others have said, this family will never have to leave.

You can’t compare private rent to a single tenant to student multiple occupancy lets because those are exploitative of the students (above market rate) and you need a special license as a landlord too. Students are less likely to take care of a property as well.

I wouldn’t worry about the rent. £1650 isn’t a peppercorn rent. As the flat has no mortgage, it is a decent income stream. Landlords can also deduct any costs for maintenance from the income that is taxed- that includes all the certificates and so on.

I'd be more concerned that they're not doing all of their legal obligations

Also they must serve the Renters’ Rights Information Sheet otherwise it’s a £7000 fine.
Tenants can now contest any rent rises and the landlord cannot get the increased rent until it has gone to tribunal- probably taking a year. Even if the tribunal agrees to the rent increase, it won’t be back dated to account for the delay in going to tribunal. This is why most landlords have increased their rents while they can.

Good on them.. They could have asked their friends to house sit for nothing.

My parents have a small block of flats in their home country. They rent them out at about half market rent. They don't need the money, and all are long term tenants that take care of the place.

If everyone is happy with the arrangement then I think it's fine.

My biggest worry is that they may not be able to commit to providing this flat forever and there could be tremendous anguish and awkwardness if they ever wanted to end the tenancy .Especially as it is a generous offer below market rent and a comfortable flat . With 5 children and a young baby the friend's son will need a home for many years and it might be hard for your parents to take possession of the flat again if they ever wanted to. It would be better to clarify that they would commit to renting it for 2 or 3 years but that they might not to be able to continue for longer . Moving house is stressful and expensive and their generosity could well back fire on them or on their children (you )

Make sure they get landlords insurance. Saved us when my partner rented his house. Ten months of unpaid rent.

They are doing her friend a favour. Charging under market rate when they could rent it for more.

It is an act of charity.

Yes, £1650 rent (from which as pp explained they will have to pay tax, landlord licence, EICR, gas check, landlord insurance, EPC, smoke alarms, maintenance and repairs) in an area where the same properties go for more, is doing a kindness. Particularly because these tenants, unlike the open market, will not have to have a credit check or references.

And if it’s not a bargain, they are free to rent elsewhere. One income and 5 kids, I’m sure landlords will be fighting for them. Perhaps you could explain how actually they deserve it for less and should haggle it down because of course OP’s parents are just evil landlords.

No, I stand by it, OPs parents are being very charitable with this offer.

You are right to be concerned OP - they should definitely get some professional tax advice. Sounds like a whole heap of potential trouble only to then have to pay CGT for the months that it was rented out and that's on the overall profit so if they have owned it for some time they'll potentially be paying needless tax on profits made long before it was rented. Could well end up being a case of no good deed goes unpunished. They would be far better off selling and then relocating nearer family

They possibly don't realise all the rules and costs associated with being a landlord? Could you show them a guide that reflects the new post 1 May rules?
Great they don't need to make a profit but they don't want to be out of pocket either

They mean it’s the maximum local
housing allowance rate.

So full rent could be covered by the tax payer if both adults did not work.

Good long term tenants who look after a property are well worth a small drop in rental income. I take it your parents aren’t relying on this income for living expenses.

What do you mean by this? You're not saying anything