I want to let out my existing home to help buy a new one. How do I get a Buy to Let mortgage on my existing home?
Q: I have a residential property with a mortgage and wish to change it to a 75% LTV buy to let mortgage to raise money for a deposit for a second property which will be our family home. What is the process for doing this?
This situation, which is becoming increasingly popular, is commonly referred to as Let to Buy. These let to buy mortgages are largely assessed on the property’s profitability; i.e. how much rent it can generate vs. the cost of the mortgage. Typically the rent needs to cover the mortgage interest by 125%, although the interest will often be calculated at a rate of 5-6% rather than the actual mortgage rate. The majority of lenders will also require you to have a minimum salary of at least £25,000. Start by doing your sums to ensure the rental income will be sufficient to cover the new buy to let mortgage. At the same time you need to work out your residential mortgage requirements for the new property and ensure you meet the lenders criteria.
When you apply for the buy to let mortgage you don’t need to have a tenant in the property. The mortgage lender’s surveyor will assess the potential rental income when they complete the mortgage valuation.
In the majority of ‘let to buy’ situations, funds will be released for your new buy to let mortgage and new residential mortgage at the same time – on the completion date of the purchase of your new home. You can then arrange for your new tenants to move in to the old property.
- If you haven’t done so already, you could contact local letting agents to get their rental assessment and an idea of management costs. They will give you an idea of the monthly rent your would receive and provide a checklist of the things you need to do before you can rent your property out, i.e. gas and electricity checks etc. Remember to ask them if there is a high demand for your type of property, to gain an idea of how quickly you would be able to find a tenant.
- It is important to check whether your existing mortgage has any early repayment charges (ERC’s). If there are any ERC’s we need to factor these into your calculations. For example if there are penalties the best solution might be to port your existing residential mortgage to the new property.
- Many lenders offer specific Let to Buy mortgage rates, but others will allow it on standard buy to let products so consider which might offer the best value.
- As with any property purchase, it is important to ensure the mortgage lender(s) can meet any purchase deadlines you have by researching their current service levels.
- Use the same solicitor to complete your buy to let mortgage and residential purchase to help the process run smoothly.
- Read up on landlord obligation’s and ensure you have landlord insurance.
Answered by David Hollingworth, London & Country Mortgages
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