Guide to Let-to-Buy Mortgages

What is a Let-to-Buy mortgage?

A let-to-buy mortgage is essentially two mortgages in one transaction. It acts as a combination of a buy-to-let mortgage and a standard residential mortgage.

These mortgages enable you to let out your current property to tenants, potentially withdrawing equity in the process if necessary, while also taking out a second mortgage for the new property.  

When is a Let-to-Buy mortgage useful?

Let-to-buy mortgages can be useful under a range of circumstances.

Here are just a few examples:

• You have found your dream home before being able to sell your current property
• You are looking at whether you can yield high returns through letting your current property out
• You want to try living in a different location before selling your current home
• Your employment requires you to change location
• You are moving in together as a couple and currently own separate properties
• Remove the time pressure if you are in a property chain

These are just some of the scenarios where let-to-buy mortgages can be useful, especially when you feel stuck and are limited on options.

What is the difference between Let-to-Buy and Buy-to-Let?

A let-to-buy mortgage differs from a normal buy-to-let in the sense that you already own the property, and so are remortgaging to a buy-to-let product. By doing so, the property can be let out while often releasing equity in the process to provide 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. 

Let-to-Buy mortgage calculator

Let-to-buy can seem complicated without the right help. The buy-to-let market is far from easy, and the reality is property investment will only be viable for a certain few. This is why it is so important to complete the necessary research and calculations to see if this is the right option for you. 

Book an initial 30 minute consultation with an expert consultant here to run through the figures to see if a let-to-buy mortgage is viable for you.  

We will ask the following: 

• What is your existing property value? 
• What is the estimated monthly rental? 
• What is the current existing mortgage balance? 
• What is your annual salary? 
• What is the new house property purchase? 
• How much deposit do you have?

Book my free initial 30 minute consultation here.

How do lenders calculate Let–to-Buy mortgages?

While let-to-buy mortgage rates can be very similar to buy-to-let rates, fewer lenders operate in this space which can often mean rates are slightly higher.  

They will use a standard mortgage affordability assessment, based on the rental income of the property in question and your overall income versus expenditure, to assess whether you can afford the monthly mortgage repayments.  

What is the lending criteria for Let-to-Buy mortgages?

The lending criteria vary from lender to lender, but there are some standard criteria across the board: 

• Lenders usually require the rent to cover in excess of the mortgage interest (this typically ranges between 125-145% of repayments, which include a stress tested interest rate too, but is not always the case if clients have strong earned income). 
• Maximum loan-to-value of usually 75%, but potentially 80%. This is a factor that needs to be considered if you are thinking about releasing equity in the property. 
• Passing individual lenders’ affordability assessment. This can include a good credit rating and income to back up the residential mortgage. 
• Meeting set maximum age restrictions. 

Buy–to–let rules have changed significantly over the past few years. Landlords now need much higher rent to be accepted for a buy-to-let mortgage.

Speaking to a letting agent can be the most useful way to work out an accurate figure of the potential rent you could charge. Private Finance can recommend a specialist in this area.

Is Let-to-Buy for me?

Before taking on any type of long-term cost, it is important to consider the consequences and risks of the decision, as well as the value it presents to you. 

As a more specialised mortgage type, let-to-buy mortgages require a strong level of knowledge and consideration. 

What are the downsides to Let-to-Buy?

There are certain downsides to consider for let-to-buy mortgages. 

• You will be responsible for two mortgages

A let-to-buy mortgage will mean you are responsible for the buy-to-let mortgage against your existing property and the residential mortgage on your new property. This could be stressful for some people to manage.

• Costs to consider for Let-to–Buy

Stamp duty for Let-to-Buy

It is important to remember that you are buying a second property and as such will be liable for the additional property surcharge in stamp duty land tax (SDLT) of 3%. More information on SDLT rates can be found here. Depending on the property’s value, this could mean you need to factor in a significant amount of money to your purchase. 

Work out how much stamp duty tax you may need to pay using our stamp duty calculator.

Stamp duty exemptions

If you sell your original property within three years of purchasing the second, you could claim the difference between what you paid and the normal home mover rates back. 

Please be aware, Private Finance is not a tax advisor, and this page does not constitute tax advice. Should you like us to introduce you to a specialist in this area, please let us know.

Let-to-Buy Mortgage Rates

The mortgage rates for a let-to-buy mortgage depend on your circumstances and needs. These vary dramatically by various factors such as the lender and property type. 

Please speak to one of our consultants should you require a quote based around your specific situation and requirements. 

Alternatives to Let-to-Buy 

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. Some lenders may grant you consent to let temporarily. Buy-to-let mortgages are generally for the long term.  

If you have a residential mortgage, you may already have or are able to request consent to let from your existing mortgage provider. This can allow you to rent out your current property and move into rental accommodation in the meantime, instead of buying elsewhere.  

Navigating Let-to-Buy mortgages: Specialist mortgage advice

There are a lot of moving parts to a let-to-buy mortgage, and you may find yourself dealing with two or three different lenders if you attempt to undertake this yourself. This can create issues around completion times, amongst other things. It is one of the more complex mortgage transactions and is best handled by an expert in the area. 

Private Finance offers a free initial consultation to discuss your circumstances. Book a call with one of our experts here and we will be more than happy to assist you.

Your home may be repossessed if you do not keep up repayments on your mortgage.