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Let to Buy Mortgages

With a let to buy mortgage, you keep your current own and rent it out, meaning that you can get a mortgage to buy a new home to live in.

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What is a let to buy mortgage?

A let to buy mortgage lets you keep your current home and rent it out while buying a new one to live in.

It’s a great option if you’re struggling to sell your home. Without selling, you might face delays in buying your new property, as it could slow down the property chain.

Once your Let to Buy mortgage is in place, you can go ahead with buying your new home. This way, you’ll own one property to rent out while paying a mortgage on your new home.

The process can feel a bit complicated, so it’s important to get your numbers right to ensure everything runs smoothly.

Our trusted and experienced team of mortgage brokers and advisors are on hand to help you every step of the way.

 

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What are the criteria for let to buy mortgages?

With let to buy mortgages you must meet the criteria on a two-fold basis. You must first meet the criteria for the ‘Let’ part of your mortgage requirements. This will be a Buy to Let mortgage that will be secured on your current home and is as follows:

  • You need at least 25% equity in your property after you release any deposit money for your onward purchase. This will be taken from a surveyor’s valuation of your property.
  • You will often need to provide evidence of a minimum personal income. This could be £15,000-£25,000.
  • A surveyor will have to confirm that the expected rent is in line with the local market.
  • The rental income will be further assessed by the lender to ascertain if it is enough to cover the new mortgage payment. They will also ensure there is a ‘buffer’ amount for other regular costs. The buffer will usually need to be at least 25% more than the monthly mortgage payment. Some lenders may require you to have more left over as a buffer.

The second part, or the ‘To Buy’ part of the criteria must be met and is as follows:

  • You must meet the affordability guidelines set out by the lender. This will be based on your income. Lenders will also need to confirm that the ‘Let’ part of your mortgage will not leave you over committed on monthly outgoings.
  • You will need to prove that you have the required deposit amount to purchase the new property. You can take this from proof of savings or from details of the ‘Let’ part of your mortgage.
  • Apart from the above, the rest of the criteria are identical to a traditional Buy-to-Let or residential mortgage.
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How do let to buy mortgages work?

A let to buy mortgage although a type of mortgage, is actually a type of property buying process. The process involves applying and completing on two mortgages simultaneously. In brief, these are the usual steps we will take to help you through the process.

How to get a let to buy mortgage

  • Find a lender that will lend on the basis that the property will be let out after you complete on the mortgage. This will usually be on a Buy-to-Let mortgage.
  • Use the Buy-to-Let mortgage on your existing property to take out as much equity as needed. You will use this money as a deposit for your onward property purchase. You will usually release this equity/deposit at the same time as you complete on your onward property purchase.
  • Find another lender that is willing to lend on your onward residential purchase. This lender must be willing to lend on the basis that your current home will be let out on completion of both mortgage transactions. You will use any rental income received from letting out your current home to pay the Buy-to-Let mortgage payment.
  • On completion of both transactions, ensure the money raised on your current home is used as a deposit for your new property.

Advantages and disadvantages of Let to Buy mortgages

  • The main advantage is that you’ll keep your existing property, while being able to buy a new property to live in. It is also very useful if you are struggling to sell your current home, as this, in effect, is stopping you from buying a new home to live in.
  • When trying to buy a new property, letting out your current property effectively helps to ‘break the chain.’ Therefore, making you more desirable to a seller of a property as the property chain reduces, similar to a first time buyer or a cash buyer.
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Firstly, you will become a landlord and with that comes responsibilities. The property must be kept to a minimum standard for your tenants. Furthermore, void periods without tenants mean you will have to find the money to pay the mortgage payment.

Any rental income you receive will be taxable, therefore you will need to complete annual tax returns for HMRC.

Finally, by keeping your existing property you will incur additional Stamp Duty charges on your onward purchase. Depending on your new property purchase price, this could be several thousands of pounds in extra tax.

 

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Let to buy mortgage interest rates

Let to buy mortgage rates are usually similar to standard Buy-to-Let or residential mortgage rates. There are some lenders that will not entertain the idea of a let to buy mortgage, however, there are plenty of lenders that will.

Given this availability of lenders, it’s important to get the best advice to secure the most competitive mortgage rates. Finding rates isn’t the difficult part, but meeting all the criteria for your personal circumstances can be.

Let to buy mortgage lenders have been around for quite some time now. As time goes on, more and more lenders enter this niche part of the market. The availability of lenders is not a huge issue, but, trying to make sure all the figures, calculations and specific criteria match your individual circumstance can be challenging.

Some of the most common let to buy lenders we deal with are:

  • The Mortgage Works
  • BM Solutions
  • TSB
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Let to buy mortgage deposits works two-fold, as a let to buy mortgage is effectively two transactions. For the ‘Let’ part of your transaction you will usually require 25% of your property. This will need to be after any money has been taken out for a deposit for your onward purchase. Some lenders may require less.

For the ‘To Buy’ part of the transaction, the deposit can be as little as 5%. However, most lenders will require 10% deposit or more. Lender’s requirements and lending criteria are ever evolving.

Our let to buy mortgage brokers pride themselves on staying up to date with all the latest changes. So, feel free to get in touch if you’re looking to investigate your options.

How much rental income you can achieve will very much determine how much you can borrow. As a rule of thumb, the maximum you may be able to borrow is 75% of the value of your property. There may be the odd lender that is willing to increase that, so you can borrow up to 80% of the value of the property.

On the ‘To Buy’ part for your onward purchase, you may be able to borrow as much as 95% of the property value. It will ultimately depend on your income and how that transpires into what a lender determines they can lend to you.

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Let to Buy Mortgage FAQs

Getting a let to buy mortgage with bad credit can be challenging, but it is not impossible.

It’s not much different from trying to qualify for a standard mortgage. Over the years lenders have become more sophisticated when it comes to lending to those with bad credit.

If you have bad credit and need let to buy mortgage advice, then get in touch.

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On the surface, you might think that it’s straightforward. In either let to buy or Buy-to-Let scenarios, the result for the borrower will be the same. They will have two properties under their ownership. However, the process for how they got there in either case contains some fundamental differences that are worth examining.

With a normal Buy-to-Let mortgage, the borrower will already have a place where they live. This will typically either be wholly owned, mortgaged, or rented property. They simply need to provide a large enough deposit to secure the Buy-to-Let mortgage, usually 25%. The lender needs to be satisfied that the expected rent will be enough to cover the mortgage and costs.

With a let to buy arrangement, the borrowers are looking to convert their current home into a Buy-to-Let property and at the same time obtain a new residential mortgage on their next home. This requires double the number of assessments on the part of the lender, as essentially, there is an arrangement of two separate mortgages that need to work together.

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