Let to Buy Mortgages
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Let to Buy Mortgage – is it right for you?
A Let to Buy mortgage is a less well known way to buy a new home. It helps you let out your current home while buying a new property, and can be an effective way to move in a variety of situations. There are a few pros and cons to consider.
What is a Let to Buy mortgage?
With a Let to Buy mortgage you can rent out your existing home and buy a new one, all under the same mortgage lender.
It involves having two separate mortgages simultaneously. Your existing mortgage turns into a Buy to Let, which means you can rent the house out to a tenant. Meanwhile, you take out a residential mortgage on the new home.
Using a single lender for both products – Let to Buy – makes the process simpler. The alternative is to take out two separate mortgage products.
How does a Let to Buy mortgage work?
The big advantage of Let to Buy is that you can use the equity in your home rather than raising a cash deposit. Plus, the lender doesn’t count your current mortgage as a monthly outgoing, which can mean you can borrow a little more.
For a Let to Buy mortgage to work, the lender will want confirmation that the rental income from your first home will help you afford the mortgage repayments on the new one.
When is Let to Buy a good idea?
Many people choose Let to Buy to use their equity as a deposit, while keeping their first home as an investment.
Another fairly common reason is to buy a new home when it’s difficult to sell your existing property.
Why do I need a special mortgage?
Letting residential property out under a standard mortgage is a breach of mortgage terms, you always need a Buy to Let mortgage. Some lenders will give you permission to let on a standard mortgage, while others won’t, in which case you will need either a new Buy to Let or Let to Buy deal.
With most Buy to Let mortgages you will pay higher fees and interest rates.
What Let to Buy lending criteria will I need to meet?
Mortgage criteria for a Let to Buy mortgage will focus on both your income and the rent you can get from your existing home. In addition, lenders will often look for:
- Rental income of between 125% to 145% of monthly mortgage repayments
- A maximum LTV (Loan to Value) of 80%
- Proof you’re buying a new home at the same time as letting your current one
- Using the same solicitor for both transactions
- Being aged 75 or under at the end of the mortgage
Let to Buy mortgages and stamp duty
Some people decide against Let to Buy once they calculate the Stamp Duty. There is an extra 3% to pay when buying a second home. So on a £200,000 house, the additional stamp duty will total £6,000.
If you go on to sell your first home within three years, the government will refund the additional 3% paid.
Advantages of Let to Buy
The main advantage of Let to Buy is to access your equity without selling your home. It can also seem less stressful than finding a Buy to Let mortgage for your current home at the same time as comparing mortgage deals for the new property.
Disadvantages of Let to Buy
Owning two properties can seem like a great investment – but don’t forget that you’re liable for twice the repair and maintenance costs too. You’re also responsible for paying two mortgages, which can be stressful and expensive should you not have a tenant in place for a while.
There will generally be a smaller choice of lenders available to you for Let to Buy, so you might not get the most competitive mortgage rates. It may be cheaper to organise two mortgages separately if you have this option.
What if I only want to rent out my property for a short period?
Let to Buy may not be the best option if you only want to rent for a short time. Start by asking your current lender for ‘consent to let’. If this is against their policy, it will usually be better to take out a flexible Buy to Let mortgage. Seek out a deal with no early repayment charge.
How can a Mortgage Broker help?
Let to Buy can be fairly complicated and it is not as widely available as a standard mortgage. Choosing a broker like The Mortgage Company takes away the stress of exploring different types of mortgage to find a good deal. We know which lenders offer Let to Buy and will negotiate on your behalf to get favourable rates and fees.
We’ll also help you with the mortgage application, and get you ready to switch the mortgages over at the right time. The Mortgage Company (Nottingham) Ltd is an appointed representative of Sesame Ltd which is authorised and regulated by the Financial Conduct Authority.
The Financial Conduct Authority does not regulate some forms of let to buy mortgages.