What is a Let to Buy mortgage?
A Let to Buy mortgage allows you to rent out your current home while you live in a new residential property. This can be beneficial if you need move home for work and don’t want to sell your home. It can also help if you are struggling to sell your current home.
Consider your finances and ensure that the figures are favourable before taking out this type of mortgage. Ultimately, it allows you to have one property to rent out while you pay the mortgage on your new home.
Let to Buy arrangements involve finding suitable products and lenders for both your existing property and new home. Lenders use the same criteria for creditworthiness and affordability as with a residential mortgage.
Some mainstream lenders have specialised packages for Let to Buy situations. However, there are situations where you may need to find different lenders and mortgage products for each transaction.
Terms and mortgage deals can change, so it’s important to consult with a mortgage advisor. The process is more complex and requires careful management, but advisors can guide you through each step of the process.
What is the Let to Buy mortgage criteria?
With Let to Buy mortgages, you must meet the criteria on a two-fold basis. Firstly, you must meet the criteria for the ‘Let’ part of your mortgage requirements. This will be a Buy-to-Let mortgage secured against your current home. In this instance, your original property serves as collateral.
- You must have at least 25% equity left in your property after you release money for your onward purchase. A surveyor will determine the value of your property for this purpose.
- Lenders often require you to prove a minimum personal income – this could be £15,000-£25,000.
- A surveyor will confirm that the rental income you hope to receive is in line with the local rental market.
- The lender will check if the rental income can cover the new mortgage payment and have extra money for other expenses. The buffer will usually need to be at least 25% more than the monthly mortgage repayment. Some lenders may require you to have more left as a buffer.
After meeting the ‘Let’ part of the criteria, the next step is to meet the ‘to Buy’ part as follows:
- You must meet the affordability guidelines set out by the lender. They will base this on your personal income. The check will ensure that your ‘Let’ payments aren’t too high for your monthly budget.
- You will need to prove that you have the required deposit amount to purchase the new property. You can use proof of your savings for this purpose. You can also raise the deposit from the ‘Let’ part of your mortgage.
- You’ll may need as little as a 5% deposit for the ‘to Buy’ part. However, most lenders will require a 10% deposit or more.
- Apart from the above, the rest of the criteria are identical to a traditional Buy-to-Let or residential mortgage.
To see if you meet the criteria above, speak to one of our experienced advisors today.
How much can I borrow with a Let to Buy mortgage?
The rent you receive will determine the amount you can borrow for the rental portion of your Let to Buy mortgage. This means the more rent you receive, the more you can borrow for your mortgage. Always consider potential rental income when submitting a Let to Buy mortgage application.
As a rule of thumb, the maximum you may be able to borrow is 75% of the value of your property. Occasionally, however, some lenders will be willing to squeeze so that you can borrow 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. Lenders determine your ability to borrow money based on your income and their affordability assessment.
What’s the difference between Let to Buy and Buy-to-Let?
Let to Buy and Buy-to-Let involve owning two properties; one to live in and one to rent out. The main difference is that Buy-to-Let involves investing in a rental property. Let to Buy, on the other hand, involves converting a current home loan into a Buy-to-Let mortgage. It also involves getting a new residential mortgage.
Both options require a large enough deposit and lender approval based on predicted rental income. Let to Buy requires more assessments and involves managing two separate mortgages.
To sum up:
- In the first instance, the borrower is buying a new property with the intent to let it out.
- In the second, the borrower is refinancing their current property to rent it out. They are also getting a new mortgage for a different place to live in.
A Let to Buy mortgage can be a type of mortgage, but it is generally a type of property buying process. The process involves applying for and completing on 2 mortgages simultaneously. In brief, these are the usual steps we will take to help you through the process:
- Search for a lender who will remortgage your current home. The lender will require you to rent out the home after you finish paying off the mortgage. This will usually be on a Buy-to-Let mortgage.
- Use the Buy-to-Let mortgage on your existing property to release as much equity as needed. This money serves as a deposit for your onward property purchase. You will usually receive the release of this equity at the same time you complete on your purchase.
- Find another lender that is willing to lend on your onward residential purchase. The lender must agree to lend money under the condition that you rent out your current home after getting the mortgage. You will use the rental income from your current home to pay for the Buy-to-Let mortgage.
- Once the transaction is complete, we’ll check with your legal representatives. You can then sell your home, buy a new one, and use the mortgage money and deposit to rent out your old home.
Getting a Let to Buy mortgage can be a complex process that involves several different factors. Planning is crucial – act carefully and quickly to ensure everything goes smoothly.
Get in touch with us if you plan to keep your current residence while buying a second home for living. We can help you determine if a Let to Buy mortgage is the right option for you.
What are the advantages and disadvantages of Let to Buy mortgages?
The main advantage is that you can keep your current property as an investment and buy a new one to live in. This is also helpful if you’re struggling to sell your current home.
Being in this position can make you more appealing to sellers by breaking the chain of buying and selling properties.
Renting out your current home can also provide you with similar advantages as a first-time buyer or someone paying in cash.
While holding onto your existing home may seem like a brilliant investment idea, it can bring its disadvantages. Firstly, you will become a landlord and that brings responsibilities. Make sure to keep your property in good condition for tenants. If there are no tenants in the property, you must still pay the mortgage on time.
If you earn money from renting, you must pay taxes on it. You will need to fill out yearly tax forms for HMRC. By keeping your existing property, you will incur additional Stamp Duty charges on your onward purchase. Depending on your new property price, this could be several thousands of pounds in extra tax.
Contact IMC Mortgage Brokers to learn more and discuss the pros and cons that apply to your situation. We are here to assist you.
Finding the best Let to Buy mortgage rates
Let to Buy mortgage rates are typically similar to Buy-to-Let or standard residential mortgage rates. Some lenders will not entertain the idea of a Let to Buy mortgage – but others will.
With various lenders available, it’s crucial to seek advice to secure the best mortgage rates. Finding rates is not hard, but combining criteria and borrowing needs for your situation can be challenging.
Our advisors at IMC Mortgage Brokers have the expertise to find you the best rate for your situation. They also ensure that the lenders they choose will provide you with the money smoothly.
Finding the best Let to Buy mortgage lenders
Let to Buy mortgage providers have been accessible for a long time. More lenders are willing to enter this niche part of the market. Finding a lender is simple, but making sure that the numbers and requirements match your situation can be challenging.
Our advisors can connect you with well-known lenders and niche specialists who work with mortgage brokers exclusively.
Let to Buy mortgage advice
Obtaining a Let to Buy loan can be a lengthy and intricate process. To make it work, apply for, and complete, a residential and Buy-to-Let mortgage simultaneously.
Because each inquiry is unique, it’s crucial to align the two mortgages to ensure a smooth process. This will help you keep your current home as an investment and buy your new home successfully.
To make sure everything runs smoothly it is important to get the right advice. Bad advice can cost you more money in the end and make it harder to finish the task successfully.
At IMC Mortgage Brokers our expert Let to Buy mortgage brokers are on hand to help.
