The Private Finance Guide to Let-to-Buy Mortgages
You may find your dream home before being able to sell your current property, want to try living in a different location and not sell your current home, you need to move for work for a short to medium period or may feel your current property would make a great investment – these are just some of the scenarios where let-to-buy mortgages can provide the perfect solution.
What is a let-to-buy mortgage?
It is despite the name two mortgages in one transaction - a mortgage that enables you to let your current property and potentially withdraw equity if necessary and a second mortgage for the new property or in other words a combination of a buy-to-let mortgage and a standard residential mortgage.
It differs from a normal buy-to-let in the sense that you already own the property and so are undertaking a remortgage to a buy-let-product to let and often to release equity, providing the deposit for the new residential property. In the future, when you remortgage this property, it would be treated more like a normal buy-to-let mortgage if it is still let out.
What is the usual lending criteria?
This of course varies by lenders, but there are some standard criteria across the board:
- A rental value that is higher than the monthly repayments, lenders usually require the rent to cover around 145% of said repayments which include a stress tested interest rate too.
- Max LTV of usually 75%, but potentially 80%, something that needs to be considered if you are thinking about releasing equity.
- Passing individual lenders affordability assessment, i.e., good credit rating and income to back up the residential mortgage.
A useful financial planning tool
Let-to-buy mortgages are a great financial planning tool and work perfectly for those with properties that have increased in value in recent years and who are looking to capitalise on this growth and finance the purchase of another house without the deposit. Often facilitating a move to the country or to a dream long-term family home.
What are the best rates available?
These tend to be bespoke products depending on your overall circumstances and needs and as such vary dramatically, by lender, property type etc. Please speak to one of our consultants should you require a quote based around your specific situation and requirements.
Things to consider…
You will be becoming a landlord and as such have new range of responsibilities to consider from maintaining the property to potential tax implications* to finding tenants, and so this may not be for everyone.
It is important to remember that you are buying a second property and as such will be liable for the additional property surcharge in SDLT, which depending on the property’s value could mean you need to factor in a significant amount of money to your purchase. However, if you sell your original property within three years of purchasing the second, you can claim the difference between what you paid and the normal home mover rates back. *
If you only need to let your current property for a short period on account of moving away for work or while you are trying to sell your property, you may not need to switch to a buy-to-let mortgage as some lenders may grant you consent to let temporarily - buy-to-let mortgages are generally for the long term.
There are a lot of moving parts to a let-to buy mortgage and you may find yourself dealing with 2 or 3 different lenders if you attempt to undertake this yourself and this can create issues around completion times, amongst other things. It is one of the more complex mortgage transactions and best handled by an advisor.
Please always remember that your home may be repossessed if you do not keep up repayments on your mortgage.
*We are not regulated to provide tax advice so please seek advice from a regulated advisor.