Last Updated on 10th September 2020
Let-to-buy mortgages are useful for when you don’t want to sell your home but want to buy another property to live in. A let-to-buy mortgage would then allow you to let out your current home whilst providing funds to purchase your new home.
The reason for not selling your existing home will vary for different homeowners.
For instance, it may not be practical to sell for the following reasons:
- You plan on moving back into your home
- You’ve tried selling your property but it won’t sell
- You want to retain your existing property as an investment
- Property values have dropped since you purchased your home
There may be other reasons for why you’d choose to let your property instead of selling it. Nonetheless, a let-to-buy mortgage can provide you with a perfect solution plus rental income each month. If you simply wish to switch your mortgage to a buy to let, with no onward purchase, you can read this article here.
This guide will explain let-to-buy mortgages in more detail and how to get the most from your mortgage. You can also speak to an advisor at any time.
What is a let-to-buy mortgage?
A let-to-buy mortgage is a loan that allows you to let your home whilst providing you with a loan to purchase a new home. Although a let-to-buy mortgage sounds like a single mortgage, it actually involves two mortgages with a single lender. One mortgage is required for your existing property and a second mortgage is required for your new property.
Your existing home will require a mortgage so that you can let it out. As you intend to let the property, you’ll need a buy-to-let mortgage. Your new property which you intend to live in will require a residential mortgage. This is how a let-to-buy would essentially work.
If you have equity in your current property or even own it outright, you may be able to release some equity. This can then provide you with a deposit to help fund your new purchase.
Depending on the let-to-buy rates you qualify for, you should be able to use your new-found rental income to cover your buy-to-let mortgage. You may even have some funds left over to help you with your residential mortgage.
How to get a let-to-buy mortgage
Applying for a let-to-buy mortgage would involve an assessment carried out by your lender. As you’ll be needing both a buy-to-let mortgage and a residential mortgage, you’d have to meet the criteria for each of them.
To qualify for a let-to-buy you will need to:
- Meet the affordability for your new home
- Aim for a 10% deposit for your new home as a bare minimum
- Have a 25% deposit for your buy-to-let mortgage (this can be equity in your existing home)
- Ensure that rental income will cover 125% of your buy-to-let mortgage repayments
- Have a good credit score, although there are lenders that may approve you even with bad credit
How much can I borrow?
The majority of lenders will only lend 75% LTV on buy-to-let mortgages. This means that you’ll need a deposit of at least 25% for your existing property. If you have enough equity, you may be able to use this as your deposit, or at least part of it. There are also lenders that may consider a higher LTV if you’re struggling to raise a 25% deposit.
Buy-to-let mortgage lenders also require rental income to cover 125% of the mortgage payments each month. If you’re unsure about how much your property will rent for, you can speak to a local letting agent who may offer you a free rental valuation. Having a rental valuation in writing can also be useful if your lender is having doubts over what rent is achievable.
For the home you’re moving in to, it’s advised to have at least a 10% deposit. The more deposit you can put down the better. This is because you’ll have access to more lenders and better rates. For residential mortgages, lenders will largely focus their assessment around affordability and your credit score.
Is let-to-buy the best option if I wish to move without selling?
It’s difficult to tell whether the best-suited option would be a let-to-buy mortgage without understanding your personal circumstances. Nonetheless, we’ll look at other possible options below, however, do speak to an advisor before you make a decision.
If you plan on letting your property as a long-term investment, then a let-to-buy could be a viable option. On the other hand, if you only wish to let your existing property for a short period of time, then you may be better off avoiding a let-to-buy mortgage and gaining ‘consent to let’ from your existing lender.
Gaining consent to let from your lender allows homeowners to let their property and move out for a short period of time. The main disadvantages with gaining consent to let are that it isn’t a permanent arrangement and it can be very difficult trying to get a second residential mortgage.
Another alternative could be to simply stay in your existing home. You may also be able to remortgage to release equity and spend the funds on home improvements.
There are a number of options that may be suitable, it all depends on your reasons for moving. You can speak to an advisor at any time if you’re unsure of what to do.
Will I have to pay stamp duty?
It’s important to understand what stamp duty land tax you’d be paying under a let-to-buy deal. As you’ll be purchasing a second property, you’ll be liable to pay additional stamp duty. Additional stamp duty starts from 3% and can go as high as 15%.
Please see our stamp duty land tax table below.
|Purchase price of the property||Rate of Stamp Duty||Buy-to-let/ Additional Home Rate|
|£0 – £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1,500,000||10%||13%|
|Over £1.5 million||12%||15%|
You can claim back any additional stamp duty you’ve paid if you sell your second property within three years. That said, you need to make the claim twelve months from when the sale completed. If you’re lucky enough to find a property under £40,000, you won’t be subject to second home stamp duty.
Speak to a let-to-buy mortgage broker
As let-to-buy mortgages involve getting two mortgages, the process is far from simple. Even if you were taking out a single mortgage, having a broker can ensure you’re not overpaying by securing you the best possible deal. With two mortgages involved, it’s very risky trying to do it all by yourself.
Let-to-buy brokers can assess your situation and guide you on what the best possible solution is. Furthermore, brokers can also speak to underwriters should there be any issues. Brokers will only consult lenders where you meet their criteria, such as affordability. Even if you have bad credit or have recently become self-employed, going to a high-street lender yourself will more than likely result in your mortgage being declined.
Our advisors are specialists in finding the best let-to-buy mortgage deals. You can make an enquiry below or call on 0800 195 0490 to speak to an advisor.