Let to Buy Mortgages Explained
Let to Buy mortgages can help you buy your next house when you haven’t got a buyer for your existing home. We look at the pros and cons, whether it’s right for you and steps you need to take.
In an ideal world, you’d sell your property at asking price with no drama and then find your dream home and move in. Sadly, the world of property is far from ideal and you may well find that perfect property to move into long before you get a buyer for your home. One option when this happens is to let your current property out to tenants and take out a new “Let to Buy” mortgage to buy your next home.
What is Let to Buy?
If you have enough equity in your home, you remortgage and release some cash to put down a deposit on a new home. You then let out your current home and use the rental income to cover the mortgage on your existing home. This then allows you to get a mortgage for a new home, assuming you can cover the repayments with your salary and other sources of income.
Let to Buy is also a popular option with couples wanting to move in together, but each have their own property. In this case, you could both move into one of the properties and rent the other one out using a Let to Buy mortgage.
Not sure whether to sell up or rent out? Read our guide on when letting a property makes sense
Mortgages for Let to Buy
With Let to Buy you’ll essentially have two mortgages. You’ll need a Let to Buy deal for your current property and a standard residential mortgage for the property you want to buy.
With Let to Buy you’ll be able to release equity from your property by borrowing at a higher LTV. For example, if your home is worth £200,000 and your mortgage is currently £130,000 you can borrow £150,000 and use that extra £20,000 as a deposit on the new property.
You’ll then take out a standard residential mortgage with the same lender.
How is Let to Buy different to Buy to Let?
Unlike Buy to Let mortgages which are taken out by people specifically looking for a property to let out (or to re-mortgage one they currently let out), Let to Buy mortgages are used when you live in a property and want to move elsewhere.
What is the lending criteria for Let to Buy mortgages?
Lending criteria will differ depending on which lender you’re with but most lenders will:
- offer a maximum LTV of 75% (so you’ll need to have a decent amount of equity in the house)
- have a maximum age at application of 70 (many are lower than this)
- want to see evidence of an onward purchase
Furthermore, your current property can’t be listed for sale or be sold subject to contract.
Since buy to let rules have changed, lenders now require landlords to be able to achieve a higher rent in relation to their mortgage repayments. You’ll need to find out how much rent you’ll be able to achieve on the property to ensure you can meet this.
The best way to find out how much rent a property is likely to achieve is to speak to a letting agent. If you want to get a more accurate figure it’s worth telling the agent you are considering appointing them to manage the property and get them to give you an estimate on what they would set rent as. You should get quotes from at least three agents in order to get a good idea of what rent should be.
Is Let to Buy a good idea?
Let to Buy can help to ease the pressure when you’re in a property chain. If you need to sell your property so that you can buy your next home it can be extremely stressful. Let to buy removes some of that stress by taking the time pressure off.
What are the downsides to Let to Buy?
- There’s no getting around the fact you’ll be responsible for two mortgages and that can be worrying for some people.
- You’ll be hit by the Stamp Duty surcharge (3% on top of the Stamp Duty band) when you buy a second property. Although if you sell your first home within 36 months of completing on the purchase, HMRC will make a full refund.
- Let to Buy rates are not as good as standard residential mortgages (because of the increased risk) so you may not get as good a rate as you expected.
- And, of course, if you own two properties and house prices fall you’re hit twice as hard.
What are my other options?
If you need to move quickly and you’re struggling to sell your property one other option is to seek consent to let for your current property and move into rental accommodation. If you have a residential mortgage you are not able to rent out the property without the lender’s permission. While the obvious option is to remortgage onto a buy to let mortgage, it’s also possible to keep your residential mortgage but receive consent to let from your lender.
However, lenders do not have to agree to give consent to let and may impose a higher rate or fee.
Speak to a mortgage broker
Not all lenders are happy to lend on a Let to Buy basis and of those that will most will only deal with brokers, not direct with customers. It’s worth speaking to a mortgage broker regardless as this is a more complex situation than a standard mortgage application.