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If you’re looking to move home but want to keep hold of your current home, a let to buy mortgage may be a solution for you.
Put simply, a let to buy mortgage will allow you to rent your current property out and move into your new home.
Essentially, you would remortgage your current home onto a let to buy product, which will allow you to rent your current home out for you to purchase your new home.
Providing you have enough equity in your current home, you can potentially raise additional funds to contribute towards your deposit for your new purchase.
You would then take out a separate mortgage for your new purchase (assuming you need one).
The rental income would then be used to cover your let to buy mortgage payments.
You may even have surplus funds available to help cover the mortgage payments for your new home too!
It’s certainly possible to arrange a let to buy mortgage, however there’s a few things you’ll want to consider.
Similarly to a residential mortgage, a larger deposit will generally attract lower interest rates.
Unlike residential mortgages, the minimum equity requirement will be higher for a let to buy mortgage – usually around 20%, although a deposit of 25% will open up the door to a larger selection of lenders.
Some lenders have minimum income requirements (for example £25,000).
Some lenders will have minimum & maximum age limits.
Although these are typical requirements, these won’t apply to all lenders.
Although the lending for the let to buy mortgage will be based on the rental income, lenders will also take your personal income, expenditure & credit score into account
The lender will be assessing the property itself to ensure it’s in a ‘lettable condition’, as the property must be ready to rent as soon as you complete.
You’ll need to decide what type of tenancy will be in place.
For example, if you’re looking to rent each room individually, you’ll need to look into a licence for houses in multiple occupation (HMO), which will require a specific mortgage product.
Some lenders may also require a simultaneous exchange & completion for your onward purchase, which may complicate the process.
This is where you’d need to exchange and complete on your new home purchase at the same time as your let to buy mortgage.
If you arrange your let to buy mortgage on an interest only basis, you won’t be repaying the debt on a monthly basis.
You’ll want to consider how you’ll repay the loan amount at the end of the mortgage term.
This may be to sell your investment property to pay off the mortgage or you may have a separate investment plan to have this covered.
If the sale of the property is your plan, just beware that property markets can crash, so you’ll want to ensure you have enough equity in your new buy to let.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
Calculating borrowing power for a let to buy mortgage is more complex than a residential mortgage, as the lending is mainly based on the rental income achievable, among other factors such as the rate of tax you pay.
Lenders will usually want to see that the rental income covers the monthly mortgage repayments by 125% or more, at an assumed rate of 5.5% (although this varies).
Generally speaking, the higher the rental income, the larger the available loan size will be.
The simple answer is no.
A let to buy mortgage is arranged for a property that you’re looking to rent to tenants.
However, it may be an option to change your buy to let mortgage to a residential mortgage, where you’ll then be able to live in the property.
There’ll be some standard documents that you’ll want to gather, such as a proof of ID, proof of address, proof of income, residential mortgage statement, proof of deposit for your new purchase and a credit report.
More in-depth information about documents you should gather if self-employed can be found here.
You’ll also need the anticipated rental income for your current home, which we’d recommend asking a local estate agent or agents for.
Although a let to buy arrangement can be a great step into property investment, it’s not for everyone.
Compared to residential mortgages, a let to buy mortgage may come with higher lender fees and interest rates.
There’s also the additional debt to juggle, along with the added responsibilities of being a landlord.
Adding to this, you’ll want to consider your tax liability when it comes to income tax and capital gains tax.
Not to mention that you’ll also need to cover the additional 3% stamp duty surcharge on your new purchase (unless below the threshold), due to buying a second property.
The buying/mortgage process is complicated at the best of times, let alone for a let to buy scenario.
Fortunately, we deal with the mortgage process on a daily basis, so we can help take the stress out away.
We’ll be by your side throughout the process & we’d love to continue to help with your future purchases, remortgages and investments in the future too.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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