Last reviewed on 18th January 2022
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’re unable to sell your home
- Property values have dropped since you purchased your home
- You want to retain your existing property as an investment
There may be other reasons 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.
What is a let-to-buy mortgage?
A let-to-buy mortgage allows you to let your home while providing you with a loan to purchase a new home. This involves switching your existing residential mortgage to a let to buy mortgage and then getting a new residential mortgage for the home you’re moving to. You can then rent your previous home to tenants.
Depending on the let-to-buy rates you qualify for, you should be able to use your newfound rental income to cover your mortgage. You may even have some funds left over to help you with your residential mortgage.
If you have equity in your current property or even own it outright, you may be able to release equity with a remortgage. This can then provide you with a deposit to help fund your new purchase.
How does let-to-buy work?
How let-to-buy works:
- Switch your existing residential mortgage to a let-to-buy
- Decide whether you want to release equity from your existing home
- Apply for a new residential mortgage for the home you’re moving to
- Using a single lender for each mortgage can be more viable than using multiple lenders
Although a let-to-buy mortgage sounds like a single mortgage, it actually involves two mortgages, often with a single lender. One mortgage is required for your existing property and a second mortgage is required for your onward purchase.
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.
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 minimum 10% deposit for your new home
- Have a 25% deposit for your buy-to-let mortgage (this can be equity in your existing home)
- Ensure your 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 will 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 be useful if your lender is having doubts over what rent is achievable.
For the home you’re moving into, it’s advised to have at least a 10% deposit. The more you can save for a deposit, 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 the amount you can borrow and your credit score.
Who is let-to-buy suitable for?
Let-to-buy is best suited to those who want to move home, but don’t want to sell their existing home. There are a number of reasons why keeping your existing home can be a great idea.
- You eventually want to move back into your home
- Your home move is only temporary
- You’re unable to sell your existing home
- You want to retain your home for investment purposes
Property can be a great long-term investment, so you may not want to sell your home. Many of us will sell our homes so that we can use the capital to fund our next purchase. If you don’t necessarily need to sell before you buy, a let-to-buy mortgage would make perfect sense.
Is let-to-buy the best option if I wish to move without selling?
If you plan on letting your property as a long-term investment, then a let-to-buy could be a viable option. In comparison, 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 will allow you to let your 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.
What are the pros and cons?
Before you commit to switching mortgages, consider the pros and cons of let-to-buy.
Pros of let-to-buy
- Let-to-buy can make the process a lot easier, as trying to arrange two separate mortgages while you’re moving home can be difficult
- There’s a lot less pressure because you can move home in your own time, as you won’t be in a chain waiting to sell your home
- If property prices increase in the future, you’d benefit by owning two homes as opposed to one
- Fees may be more competitive when compared to buy to let mortgages
- As you’ll own two properties, you can leverage your assets if you ever need to
- Your buy to let should provide you with an income large enough to cover most of the mortgage, if not all of it
Cons of let-to-buy
- Let-to-buy rates can be higher in comparison to residential mortgages
- If house prices fall, you could lose on both properties
- The number of let-to-buy lenders is limited, so you’ll have less choice of mortgage products and deals
- Paying two mortgages is a risk and is more difficult than having to repay and manage a single mortgage
- You’ll need to pay 3% stamp duty, as you’re buying a second home
- Becoming a landlord has a lot of responsibility and legislation, which you’ll have to follow and adhere to
Will I have to pay stamp duty if I let to buy?
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 up to 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’ll need to make a claim within twelve months from when you sold your property.
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, an advisor can also speak to underwriters should there be any issues.
Mortgage advisors 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 or call on 0800 195 0490 to speak to an advisor.