Let to Buy Mortgage

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Let to Buy Mortgage

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Let to Buy Mortgage - A good option?

There are some circumstances when a Let to Buy mortgage is a useful approach to consider when buying a new home. If you already own a property and are looking to move, could this be a sensible option for you? 

What is a Let to Buy Mortgage?

A Let to Buy mortgage will allow you to buy a new home and let your current property out to tenants. At the end of the process you will own two properties – and have two mortgages.

One mortgage is a standard residential mortgage, taken out on the new home, and you will also need a Buy to Let mortgage product on the house you will be renting out.

Let to Buy is a good way to release the equity from your existing property and use it as a deposit on the new house. It also means you get to retain your first property as an investment instead of selling it.

To use your equity as a deposit you usually need to take both mortgages with the same lender. 

Is Let to Buy right for me?

There are a few scenarios when Let to Buy can be a good option:

  • When you want to retain your first property as an investment
  • If you are having trouble selling your home
  • Where you have a good level of equity
  • To avoid having a downward property chain

In addition to having good equity, you will also need a certain level of savings to cover stamp duty and the fees and costs of the mortgage.

What’s the lending criteria of a Let to Buy Mortgage?

You will need to meet the lending criteria of both the residential mortgage and the Buy to Let product. 

For the residential mortgage, you will need to meet affordability criteria – with sufficient income to comfortably afford the repayments on your mortgage. Lenders will also check your outgoings and look at your credit record. 

For the Buy to Let mortgage you will need a deposit of at least 25%, and the rental income you generate will need to meet a minimum level. This is often 125% of your monthly interest payments. 

You will also need to meet certain other criteria depending on the lender. These usually include age limits and restrictions around the type of property. 

Can I switch my current mortgage to a Buy to Let?

Some lenders will allow you to convert your existing mortgage to a Buy to Let mortgage. While this can seem a simpler approach, it won’t guarantee you the best mortgage deal. Seeking mortgage advice from a broker is a good way to explore all the options, such as:

  • Switching your current mortgage and getting a second mortgage for your onward purchase
  • Finding a single lender to provide both mortgages
  • Arranging each mortgage separately

Not sure which option is best for you? We can look at your options and help you decide.

What if I only want to rent out my property for a short period?

Let to Buy is not necessarily the most suitable option if you only plan to rent for a short time. Start by requesting ‘consent to let’ from your current lender. If this is against their policy, it will usually be better to take out a flexible Buy to Let mortgage – ideally one with no early repayment charge. 

If you’re planning to sell your existing home within a short timeframe you could also consider a Bridging Loan.

Speak to an expert

We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!

What about stamp duty?

The cost of stamp duty is one of the drawbacks of Let to Buy. Because you are buying a second property you will be liable for additional stamp duty at 3%. 

As a guide, if you are buying a new property with a price of £300,000, this extra 3% stamp duty is £9,000 on top of the £5,000 regular stamp duty bill at this price – taking the total to £14,000. These figures are based on regular stamp duty rates which return from October 2021.

Are there other drawbacks to Let to Buy mortgages?

Having two properties is a good investment, but there are additional costs and responsibilities to consider. You’re liable for twice the repair and maintenance costs, plus you are paying two mortgages, which can be stressful and expensive if you have a gap between tenants. 

There will generally be a smaller choice of lenders available to you for Let to Buy, so you might not get the most competitive mortgage rates. Plus, you will have to complete annual tax returns for your rental property – or hire an accountant to do it for you.

How can The Mortgage Mum help?

The Mortgage Mum will help you explore all the options to enable you to find a new property to live in and compare let to buy deals across high street and specialist lenders. 

We’ll ensure that the mortgage payments will be affordable by comparing lenders’ offers, and we’ll help you with the mortgage application too. For expert mortgage advice, contact us today.

Your home may be repossessed if you do not keep up repayments on your mortgage. The financial conduct authority does not regulate most buy to let mortgages.

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