Let-to-Buy Mortgages

Let-to-Buy Mortgages

You are probably familiar with buy-to-let, where you purchase a second property with the intention of renting it. But what if you want to move home as well as become a landlord?

What is ‘let to buy’?

A let to buy mortgage typically means you rent out your current residential property so that you can release equity to buy a new home (or in some cases rent/live with family). This could be for several reasons:

  • Your property isn’t selling
  • You plan to move back into the property
  • You want to retain it as an investment
  • The value of the property has dropped

The process is a little complicated as you’re applying for two mortgages. You’ll be converting your current residential mortgage to a buy to let mortgage and applying for a new residential mortgage.

What happens with a ‘let to buy’?

The process is actually quite straightforward and there is less to go wrong than with a standard house sale and move.

  • Your find a home you want and follow the usual process to arrange a buy
  • Once you are ready to move, your current mortgage is switched to a buy-to-let one
  • Simultaneously you take out a new mortgage on your new home.

It’s as simple as that really. Not only do you get to move, but you are also reducing the chances of delays in the sale chain by being two of the links yourself.

As there are two different applications in this scenario you will be assessed in two different ways by your lender/s.

When applying for the buy to let mortgage you will need to consider the following:

  • You will be capped on the LTV of your current property to around 75% of its value.
  • You will be assessed on the potential rental income and lenders will be looking for around 145% of the monthly payments.
  • Your income will be assessed for periods when you have no rental income.
  • Having a deposit of at least 25% (which can come from equity release).

What Happens With The Residential Mortgage?

With regards to the residential mortgage, applications will be assessed against the usual factors such as income and credit score. However, when assessing your application lenders will also take into consideration the following:

  • How much you are borrowing on your buy to let mortgage.
  • The potential rental income on your current property (to assess if you can afford both mortgage payments).

Who should consider ‘let to buy’?

I suppose the obvious place to start is that you need to want to move to a new home. Other reasons include:

  • You want to temporarily move to a different area
  • You want to downsize but keep your old home as an investment
  • You found a property to move into, but you are struggling to sell your current one
  • You want to use the equity in your current home to help you onto multiple ownership
  • You are part of a couple where both partners own a property

In short, if you want to move and keep your old home as an investment or intend to go back to it at some point, then it is well worth considering.

Things to think about

As with all property decisions, let to buy is a long-term commitment and you need to really consider your options carefully.

  • Are you ready to be a landlord? Make sure you understand what that will mean
  • You will still need to meet the basic criteria for a mortgage application
  • Your rental income may vary but you will still need to meet the cost of both mortgages
  • There may well be stamp duty to consider

Let to buy isn’t for everyone, but if it is right for you, it can really solve a problem and help you become the owner of a second property.

It’s important that the process is managed. Speaking to a mortgage advisor with experience in this area will put you in the best possible position, they’ll be able to guide you on your options and find the best deals based on your circumstances.

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