Last reviewed on 8th September 2023 by Martin Alexander (Mortgage Advisor)
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 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 let-to-buy?
- How does let-to-buy work?
- Who is let-to-buy suitable for?
- What’s the difference between buy to let and let-to-buy?
- How to get a let-to-buy mortgage
- Lending criteria for a let-to-buy mortgage
- Alternatives to let-to-buy mortgages
- What are the pros and cons?
- Will I have to pay stamp duty if I let-to-buy?
- Speak to a let-to-buy mortgage broker
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 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?
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 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, 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 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.
What’s the difference between buy to let and let-to-buy?
There aren’t any major 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 rather having a change of circumstances, such as moving home.
Furthermore, let-to-buy lenders are able to switch mortgages while you’re still living in the property. If you were switching to a buy to let mortgage, then 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 part of the 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’re able to 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 be needing two mortgages, you’d 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 – The majority of lenders will only lend 75% LTV on let-to-buy mortgages. This means that you’ll need equity of at least 25% in 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.
- 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 largely focus their assessment on the amount you can borrow and your credit score.
- Evidence of your property purchase – Your lender is likely to 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 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 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 of time, then you may be better off avoiding a let-to-buy mortgage and considering possible alternatives.
Consent to let
Gaining consent from your lender will allow you to rent your property to tenants and move out for a short period of time. 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 simply 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 you rent your home out to tenants.
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 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 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 – £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’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.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.