Let-to-Buy Mortgages Made Simple
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
- Access to competitive rates and some you can't get direct
- No need to spend hours researching the market
- Relax knowing you have the best advice
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Let-to-Buy Mortgages Made Simple
What are Let to buy Mortgages?
A let to buy mortgage is not something you will come across that often as you simply move from one house to another. However, a let to buy mortgage opens up the chance for you to keep your existing house, rent it out and then buy a new house to live in. This is an ideal scenario if you want to build up a property portfolio as you go through life. Let to buy mortgages can be a fantastic idea and we help lots of people each month do this.
How does a let to buy mortgage work?
A let to buy mortgage really is actually 2 mortgages at the same time. The first one is a “buy to let” mortgage on the house you currently live in. We will change your existing mortgage in to a special “buy to let” and usually release some extra capital at the same time. This extra capital will then form some or all of your deposit for the next house. Then we will take a new residential mortgage on the new house that you are buying. You will then end up with a buy to let mortgage on your old house with tenants living in there and paying you rent to cover the monthly payments (with some profit on top!) and a new mortgage on the house you now live in.
What is the difference between buy to let and let to buy?
A Buy to let mortgage is a special type of mortgage that you need whenever you buy a house with the specific aim of renting it out to tenants, so you are buying – to – let out the house. A let to buy is actually exactly the same when it comes to the house you live in, we take the same kind of mortgage from the same kind of lenders. But in this case, you are letting your house – to – buy a new one. Ultimately the products and criteria are very similar for both types.
What fees are there for a let to buy?
Let’s start with the good news: you won’t need to sell your current house. So as well as making you ready to move straight away you also don’t have to pay any estate agents fees! You also won’t have to pay a solicitor for the sale either. You may have a small legal fee for the change of mortgage on your current house though, typically only a few hundred pounds. Then you will have the usual solicitors fees for your purchase and removals, etc. The big difference though is your stamp duty. You will always pay stamp duty when you buy a property but in this case you will be buying an extra property and keeping the one you live in. This means you will have to pay the additional 3% stamp duty surcharge. This is calculated on the full purchase price of the new property so it can be quite a hefty bill that we need to budget for. If you sell your original property within 36 months though you can actually claim this back from HMRC.
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How much deposit do you need for a let to buy?
So, this scenario will only work if you have a bit of equity accumulated in your existing property or maybe some cash to help. This is because for the existing property we have to keep at least 25% equity in the property to meet with most lender’s criteria. This will vary though depending on where you are in the country and how much your property will rent out for. Each lender has a calculation that they use to assess affordability on a buy to let or let to buy mortgage. Some areas where property prices are high but rental amounts are comparatively lower may struggle to achieve the maximum mortgage. This will also vary depending on the type of property it is, some houses will rent out better than others! With this type of mortgage, getting the right advice is really important to ensure you end up with exactly the right mortgage products for you.
Repayment or interest only for a let to buy?
There is no set rule for this. There is a normal situation though and that is that generally that most people tend to have the let to buy mortgage on interest only. Having your let to buy mortgage on interest only will mean the monthly payments are nice and low so there will generally be plenty of surplus rental income for you once the mortgage has been paid. This income will be taxable though, how much will depend on the rest of your income and your tax band. There is no rule for the repayment method for the purchase of the new house either, it is common for this to be on a repayment mortgage however your entire situation should be considered before making a decision.
How much can you borrow on a Let to buy mortgage?
Your let to buy mortgage will follow all the same rules as a buy to let, as long as the rental income covers the mortgage and meets the lender’s stress test then you can borrow as much as you like up to 75% of the property value. The new house though is different. This is just like any other new mortgage and will follow the same affordability rules as any other purchase. Most lenders will also ignore the let to buy mortgage commitment so that won’t affect the amount you can borrow.
Why use a broker for a let to buy mortgage?
This whole process is quite complex. As mortgage brokers we do these cases all the time, in fact, these are some of our favourite types of cases to do! No waiting to sell, proceedable straight away, keep an investment for the future, a let to buy really is a great thing if the figures work for you. However, choosing the best lenders for 2 mortgages at the same time that will be perfect for you, will lend you enough, making sure you use the right combination of let to buy and new mortgage for the best combination of rates. Then submitting both cases and seeing both through to completion usually with 2 different solicitors. All this takes knowledge and experience that you can’t get by Googling it yourself!
For more information on Let to Buy Mortgages, please Contact Us
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