MORTGAGES
LET TO BUY MORTGAGES
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Your property may be repossessed if you do not keep up repayments on your mortgage.
Some Let to Buy mortgages are not regulated by the Financial Conduct Authority.
What is a Let to Buy mortgage?
Let to Buy isn’t widely known about, but it gives you an opportunity to capitalise on your property. It applies when you already own a home, and want to buy a new property to live in. Instead of selling your current home, you let it out to a tenant.
There’s all sorts of pros and cons that come with that. But the biggest benefit is that you now own two properties, which is a great investment for the future.
A further advantage is that with Let to Buy you can potentially raise money on your current home to fund the onward purchase, rather than saving up for a deposit.
How does a Let to Buy mortgage work?
A Let to Buy mortgage is in effect two mortgages: a Buy to Let mortgage on your current home and a residential mortgage on the onward purchase. Most lenders require both transactions to complete simultaneously, and they will be looking at the rental income that you expect to get on your current home to make sure it meets their rental stress test criteria.
There are a couple of things to consider with a Let to Buy mortgage. One is that when you have two homes, the stamp duty land tax will increase. This is because on your onward purchase you will have to pay an additional 3% stamp duty for it being an additional property. However, that additional stamp duty can be re-claimed if you sell the original home within 3 years.
Another factor is that you need a good amount of equity in your home. Lenders will require you to leave 25% equity in your first home on top of the amount you have used as a deposit.
So if you’ve got 40% equity, you can release 15% towards the deposit of the new home, but you can’t go over 75% Loan to Value.
A final point is that there’s usually no minimum income for Let to Buy. Your income will be assessed for the second property but on the Let to Buy, the lender simply wants to be assured that the rent meets and exceeds your mortgage payments – usually at 125% based on a set rate they use in their calculations. So Let to Buy can be more flexible than a traditional residential mortgage.
What’s the difference between Let to Buy and Buy to Let?
In essence, Let to Buy is a more specific situation than Buy to Let. You need a Buy to Let mortgage to rent a property out to a tenant. But with Let to Buy you’re currently living in the property, are moving to a new home, and converting your existing mortgage into a Buy to Let mortgage.
Who is a Let to Buy mortgage for?
Let to Buy is for someone who is looking to let their house out to buy a new one. There isn’t any more to it. It’s not for everyone, because you need to have good equity in your current property, and you also need to be willing to take on the additional responsibilities of owning two properties.
It can also be a great option for those who do not want to sell their current home yet, or perhaps have tried selling it, but are not attracting the interest or getting the level of offers desired. By using the Let to Buy option you could secure your new home without having to sell your existing home, so would in effect be a “chain-free” buyer and in an advantageous position to negotiate the price of your new purchase as you should be able to proceed immediately and complete the transaction within a short timescale.
How much deposit do I need for a Let to Buy mortgage?
In general you will need a 25% deposit. There are some niche products that go as low as 20% deposit, but generally you should aim for a 25% deposit to make sure it’s a worthwhile investment – less than that, the rates and payment can become very expensive.
How much can I borrow for a Let to Buy?
This can vary lender to lender, and will be based on your equity and the amount of rent you will potentially receive for your property. They will also look at whether you’re a higher or lower rate taxpayer. If you’re a higher rate taxpayer, they may lend you slightly less.
Some lenders will also take into account your income, which is called ‘top slicing’. Potentially, if the rental income or the rental calculation doesn’t quite fit, but you’re earning a certain amount, they can factor that into the calculation as well to let you borrow the amount you need.
What criteria do I need to meet for a Let to Buy mortgage?
The main criteria you need to meet will include:
- You have a main residence to let out
- You’re buying an onward property to live in
- You’re a UK resident and UK taxpayer
There’s no minimum income requirement – which is unusual in mortgages.
What are the pros and cons of Let to Buy mortgages?
If you can, it’s always a good idea to retain your property and to let it out. You will earn income from it, which you can either use to fund more investment properties or reduce the existing mortgage. That means in the future you will have a property that’s mortgage free (if you remain on a capital and repayment mortgage), in addition to your residential home.
A big advantage is that you have multiple streams of income for an extra level of security. You will also benefit from property price growth which has increased 10% in the last year – although prices can fall as well as rise.
It is also a very suitable option if you are looking to move but struggling to sell your current property, or not receiving the right offers. You can benefit from being “chain free” when offering on the next property, which in turn can help you negotiate a great purchase price.
In terms of the cons, one of the main disadvantages is the additional stamp duty. There’s an additional 3% on top of the usual stamp duty charges when you’re buying a second home – although you may be able to fund this from the equity in your first home. You also have to pay tax on the income you earn from the Let to Buy property.
You also need to think about how you will manage the rental side of things – you can pay an agent to manage that or you can look after it yourself, but sometimes letting out property can be stressful. Fingers crossed, though, you will get the right tenant and it will be easy.
What are the alternatives to Let to Buy?
The main alternative to Let to Buy is to sell your property. You then use all the equity in your current home to put forward to the new residential purchase, rather than just 75%.
If you can retain the property, the earnings potential going forward is probably greater, but using all the equity in your current home means you will potentially be able to afford a higher priced home.
You might also look at holiday lets, depending where the property is. You could potentially make your first property a holiday home. Or, the size of the property could mean it lends itself to becoming an HMO – a house of multiple occupancy – where you potentially let individual rooms. This can work well as student accommodation if the property is in the catchment area for a University.
What help is available for Let to Buy?
If you haven’t considered Let to Buy, it’s well worth thinking about it. Every adviser at Mortgage Matchmakers has Let to Buy in the back of their mind. It’s always something that raises clients’ eyebrows and when possible, it’s always something that people are glad they did.
If you want to discuss this just give us a call. It’s always worthwhile having a chat, even if you only think it’s a slight possibility. Have the conversation, because it can mean extra income, capital appreciation and a more solid foundation for the future. Just get in touch and we’ll be happy to help.
Your home/property may be repossessed if you do not keep up repayments on your mortgage.
Some Buy-To-Let Mortgages are not regulated by the Financial Conduct Authority.
What fees are involved with buying a home?
Arrangement Fees
Most mortgage lenders charge an administrative fee for the arrangement of the mortgage. This will vary from lender to lender. You may even find that some specialist lenders offer no arrangement fees for those in certain jobs.
Valuation Fees
You will need to have your chosen property independently valued, again, these fees will vary depending on the lender chosen.
Legal Fees
The mortgage application process requires the appointment of a solicitor, who will arrange conveyancing and local authority searches, usually payable directly to the solicitor.
Stamp Duty
Under normal circumstances, Stamp duty is due on the purchase of all properties and is based upon the value of your home, amongst other things. First Time Buyers currently benefit from an exemption on Stamp Duty on purchases up to £300,000.
Your home/property may be repossessed if you do not keep up repayments on your mortgage.
Some Buy-To-Let Mortgages are not regulated by the Financial Conduct Authority.
Happy Clients
Sharmila Rumpa2024-05-28Excellent and professional service, wanted to call out Bhavna Gover especially, she helped me to sort out a Ltd Company buy to let mortgage. She's very thorough in her work. Please ask for Bhavna if you need a mortgage in future, she will be happy to help for sure.
Kash Anis2024-05-23We approached Mortgage matchmakers regarding to get an options as we alreday tried few brokers before.Mohit introduced Bhavna which helped us out through out our journey.We felt it was difficult as our situation was bit tricky, but Bhavna worked out the best resoultion and sort this out. We have no words to say thank you, as it was amazing support from Bhavna and got the mortgage offer. Bhavna was fantastic,friendly and very passionate person, she is very professional Mortgage Advisor. Once again I would like to say Thanks so much for helping through out my journey to get mortgage for my new house.
Larushhh O2024-05-18It was a pleasure working with Paul over the last few months with my remortgage. He took away the stress of remortgaging with his professionalism and patience till the deal was finalised. I highly recommend him as a broker. Thanks for your support and help once again.
Aromes Bienmaison2024-05-15Paul was very helpful and provided a great guidance throughout the whole process
Shalaka2024-05-14We couldn't have asked for a better mortgage advisor! Mohit has been an absolute asset, always there when we had a question, and believe me, we had plenty! Being first-time buyers, his guidance was invaluable. What we appreciated most was his honesty and the fact that he never made us feel rushed into any decision. We're still in the process, but we already feel confident with his support. Totally recommend him to anyone in need of mortgage advice!
Dinesh Johnson2024-05-13Mohit was simply brilliant and helped us to understand all the options available in the market and choosing the best and importantly the right product for our need. Mohit is very efficient, he goes out of his way to help his clients and keep his client’s interest at top of his priorities. He was very professional and knowledgeable, would certainly don’t think twice to get his service in the future. I would highly recommend him to anyone who needs advice and support in sorting their mortgages. Thank you soo much Mohit for your hard work and support in sorting our both residential and BTL mortgages! Tharaka & Dinesh
Bagya P2024-04-30If anyone looking for hassle-free mortgage process, then I would suggest to discuss with Mohit. Mohit explained the process more in detail, assessed the situation very well and gave perfect suggestions to get the process done. Also, he closely connected with Solicitor and made the whole process easy. Additionally, I would like to thank Bhavana for her exceptional work. She tried many options to get the better deal from different Vendors. She explained all my queries on time and appreciate her professionalism. Thanks a lot once again Mohit and Bhavana for all your support.
Oliver Harris2024-04-24Mohit was a great help with finding my first mortgage. He talked through all options clearly and found the best deal to suit my needs. I'd thoroughly recommend using his services.
Veronica Ihonor2024-03-03The team was very professional with spontaneous delivery in line with agreement. Well done guys
Ogechi Eke2024-01-14If you’re looking for a professional mortgage broker who actually goes above and beyond his role then look no further. Ankur Daru is your main man. He is extremely helpful and knowledgeable. Even when the interest rate dropped for my lender, without prompting, he sent me an updated deed. There are so much more I could write but I’ll sum him up in a few words: Professional, knowledgeable and helpful. Thank you for securing the deal for me Ankur! I look forward to the next one! Ogechi