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HomeBuy to LetLet to buy mortgages

Let to buy mortgages

Last updated on 8th September 2023 by Martin Alexander

Let-to-buy mortgages are useful when you don’t want to sell your home but want to buy another property to live in. A let-to-buy mortgage would allow you to let out your current home while 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 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 wish to switch your mortgage to a buy-to-let, with no onward purchase, you can read this article here.

What is let-to-buy?

Let-to-buy allows you to rent out your home so you can buy a new home to live in. You can do this by switching your existing residential mortgage to a let-to-buy mortgage and 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 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?

Let-to-buy works in the following way:

  • Switch your existing residential mortgage to a let-to-buy
  • Apply for a new residential mortgage for the home you’re moving to
  • Using a single lender for each mortgage can be easier than using multiple lenders

Although a let-to-buy mortgage sounds like a single mortgage, it 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, this can’t be a residential mortgage. Your new property where you intend to live will require a residential mortgage. This is how a let-to-buy would essentially work.

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 several 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. A let-to-buy mortgage would make perfect sense if you don’t necessarily need to sell before you buy.

What’s the difference between buy-to-let and let-to-buy?

There aren’t any significant differences, as let-to-buy is essentially a type of buy-to-let mortgage. That being said, buy-to-let mortgages are for landlords with the sole intention of property investment and renting a property to tenants. In comparison, let-to-buy is geared towards ‘accidental landlords’ who aren’t investing in property but are changing circumstances, such as moving home.

Furthermore, let-to-buy lenders can switch mortgages while you live in the property. If you were switching to a buy-to-let mortgage, lenders would require you to vacate the property beforehand. This can be inconvenient, as you’ll have a lot to manage and may even need to move by a specific timeframe, which can cause issues.

How to get a let-to-buy mortgage

It’s recommended to first speak to a mortgage advisor who specialises in this field. Your advisor will then guide you through each process and check your eligibility.

To get a let-to-buy, you will need to:

  • Meet the affordability for your new home – Lenders will carry out an affordability check to ensure you can repay the mortgage you’ve applied for.
  • Download your credit reports – Checking your credit reports beforehand is highly recommended. This is to ensure there are no errors on your report, or if you’ve run into credit issues, you can assess what’s been recorded.
  • Check if you’re eligible – Each lender has varied criteria, so you’ll first need to check with your advisor if you meet the criteria for let-to-buy. This can involve assessments on whether the rental value is high enough to cover the mortgage and whether you have enough equity.

Lending criteria for a let-to-buy mortgage

Applying for a let-to-buy mortgage would involve an assessment carried out by your lender. As you’ll need two mortgages, you’ll need to meet the criteria for each of them.

To qualify for a let-to-buy, you must meet the following criteria:

  • Aim for 25% equity in your existing home – Most lenders offer 75% LTV on let-to-buy mortgages. This means you’ll need at least 25% equity in your current property. If you have enough equity, you may be able to use this as your deposit or at least part of it. Some lenders will consider a higher LTV if you struggle to raise a 25% deposit.
  • 10% deposit minimum for your new home – 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 mainly assess the amount you can borrow and your credit score.
  • Evidence of your property purchase – Your lender will likely request evidence that you’re buying a residential property. If you’re using the same lender for both mortgages, then this should be sufficient. You may also be requested to provide evidence that you’re renting your previous home to tenants.
  • Estimated rental values – Most mortgage lenders require rental income to cover at least 125% of monthly mortgage payments. If you’re unsure how much your property will rent, you can speak to a local letting agent who may offer you a free rental valuation. Having a rental valuation in writing can be helpful if your lender is having doubts about what rent is achievable.

Alternatives to let-to-buy mortgages

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, you may be better off avoiding a let-to-buy mortgage and considering possible alternatives.

Gaining consent from your lender will allow you to rent your property to tenants and move out for a short period. The main disadvantages of gaining consent to let is that it isn’t a permanent arrangement and it can be very difficult trying to get a second residential mortgage.

Buy-to-let mortgage

It’s possible to switch your current residential mortgage to a buy-to-let mortgage. You’d then take out a new residential mortgage on the home you’re moving to. Nonetheless, doing it this way can be difficult when compared to let-to-buy. Furthermore, it can also be an expensive way to switch mortgages and move home.

Remortgage your existing home

Another alternative could be to stay in your existing home. You may also be able to remortgage to release equity and spend the funds on home improvements. You can also consider moving into rented accommodation while renting your home out to tenants.

What are the pros and cons?

Before 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 will 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 fewer choices 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 a 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 pay under a let-to-buy deal. Because you’re purchasing a second property, you’ll be liable to pay additional stamp duty. Additional stamp duty starts from 3% and can increase 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 – £250,000 0% 3%
£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 must make a claim within twelve months of selling your property.

You won’t be subject to second home stamp duty if you’re lucky enough to find a property under £40,000.

Speak to a let-to-buy mortgage broker

Let-to-buy mortgages involve getting two mortgages, so 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 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 the best possible solution. 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 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.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.