Let to Buy Mortgages
Let to Buy Mortgages
Andy Done joins us to talk all about Let to Buy mortgages.
Whether you’re buying for the first time, moving, investing or remortgaging we’ve got it all covered.
Listen to the latest podcast below to find out more!
What is a Let to Buy mortgage and how do they work?
A Let to Buy mortgage is used when you want to rent out your existing home and buy a new one to live in. Your existing mortgage is converted to a Let to Buy mortgage so that you can let your current home out. You may be able to increase the loan amount and use the additional borrowing as a deposit for the onward purchase.
This means you’ll end up with two mortgages, a Let to Buy mortgage on your current home and a residential mortgage on the home you are buying.
What’s the difference between Let to Buy and Buy to Let?
A Buy to Let mortgage is used when you’re taking out a mortgage specifically to buy a property that you intend to rent out. With a Let to Buy mortgage, you already own the property that you plan to let out, your residential home, and you buy a new home to replace it.
Who is a Let to Buy mortgage for?
There’s a number of situations where you might consider using a Let to Buy mortgage. If you are looking to move house in a hurry and haven’t sold your current property, a Let to Buy mortgage will enable you to rent your existing property out and then get a normal residential mortgage on the new property.
If you found a property that you wanted to buy, but you don’t want to sell your existing property, you could use a Let to Buy mortgage to keep it as a rental property. If you’re moving away due to work or travelling, but your long term plan is to move back into the property in the future, then you could also use a Let to Buy for that purpose.
How much deposit do I need?
The majority of lenders will allow you to borrow up to 75% of the value of the property, so you need to leave 25% equity as a deposit. So if your house was worth £200,000, you could have a mortgage of £150,000 and your 25% equity would be the £50,000 that you left as equity.
There are a few lenders who will allow you to borrow up to 80% of the value of your current home, so the deposit required will be 20%, but the rates might be less competitive with these providers.
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How much can I borrow on a Let to Buy mortgage?
The affordability for a Let to Buy mortgage is not normally calculated using your personal income, although some lenders do have a minimum income requirement. Most lenders want the rental income to be a certain percentage of the monthly interest-only mortgage payment. They will use a stress test rate, which can change depending on your gross income level and how long the product is fixed for.
What sort of Criteria do I need to meet?
To qualify for a Let to Buy Mortgage there are general lender criteria to meet when it comes to things like age, the amount of equity in the property, credit history etc. The maximum you can borrow will normally be between 75% and 80% of the value of your current home. The mortgage valuation will provide a rental figure which will be used in the affordability calculation.
You may need to provide proof that you are buying a new home at the same time as switching your mortgage and the lender sometimes requests a copy of your mortgage offer for your new home. They may also insist on simultaneous completion, so that the Let to Buy and purchase happens at the same time if you’re raising equity to be used towards the deposit of the new purchase.
What are the pros and cons?
There are a number of considerations with Let to Buy, including the costs and challenges of becoming a landlord, and the need to manage two mortgages at the same time. Paying two mortgages can be a bit more complicated, and you will potentially have to pay additional stamp duty. There are also likely to be extra fees involved with solicitors’ valuations and legal costs.
Some pros, however, are that it removes the stress of having to sell your property, allowing you to move quicker. There’s potential benefit from an increased income from the rental of your property, and if house prices continue to increase, you’ll benefit from future house price growth.
What are the alternatives to are there?
There are a few alternatives to Let to Buy, but it depends on the person’s circumstances and what they want to achieve. One option could be to take out a short term Bridging Loan to fund the residential purchase and continue to market your current property. The downside of this is bridging finance is expensive and the longer you have it in place, the more expensive it becomes, so you’d have to try and sell your property quite quickly.
Another option is that you could ask your existing lender for Consent to Let, so that you can discount the mortgage amount and the payment from the affordability calculations on the new purchase and rent out the property. You would still pay additional stamp duty on the new purchase.
Or you can purchase your current home with a Limited Company Let to Buy product, which means you pay additional stamp duty on your current property, but you won’t have to pay it on the onward residential purchase. This can be advantageous if you’re buying a much more expensive property. But as with anything to do with Let to Buy Limited Company purchases, it’s always worth seeking advice from an accountant before you decide to do anything.
How can a Mortgage Broker like Mortgages Plain and Simple help?
A mortgage broker can discuss your circumstances and requirements with you, and then recommend the most suitable way to purchase a property. We can submit the applications for the Let to Buy mortgage and residential mortgage, and manage both applications for you from start to completion, to ensure that you complete both mortgages simultaneously.
An experienced mortgage broker will be able to guide you through the process and make sure you know what needs to be done every step of the way.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH REPAYMENTS ON YOUR MORTGAGE.
The Financial Conduct Authority does not regulate some Let to Buy Mortgages.