Let to Buy Mortgages
A Let to Buy mortgage allows homeowners to move into a new property while keeping their existing home and renting it out to tenants.
This type of arrangement can be an attractive option for homeowners who do not want to sell their current property but need to raise funds to purchase a new home.
Let to Buy mortgages have become increasingly popular among homeowners looking to relocate, upgrade to a larger property, or begin building a property investment portfolio.
What Is a Let to Buy Mortgage?
A Let to Buy mortgage involves converting your current residential property into a rental property while simultaneously taking out a mortgage on a new home that you intend to live in.
In most cases, there are two separate mortgages involved:
- A buy-to-let mortgage secured against your existing property
- A residential mortgage for your new home
The equity released from your current property can often be used towards the deposit on your new home.
How Does a Let to Buy Mortgage Work?
The process typically works as follows:
- Your existing property is remortgaged onto a buy-to-let mortgage.
- The lender assesses the expected rental income from the property.
- Any available equity can be released and used as a deposit for your next home.
- You then apply for a residential mortgage to purchase the new property you intend to live in.
The rental income from the existing property is expected to cover the buy-to-let mortgage payments and associated costs.
How Do Lenders Assess a Let to Buy Application?
Lenders will usually assess both parts of the arrangement separately.
For the property being let:
- Expected rental income
- Property value
- Loan-to-value ratio
- Buy-to-let affordability requirements
For the new residential property:
- Income and affordability
- Credit history
- Existing financial commitments
- Deposit available
Most lenders require the anticipated rental income to comfortably cover the mortgage payments on the property being rented out.
What Are the Advantages of a Let to Buy Mortgage?
Keep Your Existing Property
Rather than selling your home, you can retain ownership and potentially benefit from future property price growth.
Generate Rental Income
Rent received from tenants can help cover the mortgage payments on the property.
Release Equity for a New Home
Many homeowners use equity from their existing property to fund the deposit on their next purchase.
Build a Property Portfolio
Let to Buy can provide a straightforward route into becoming a landlord and building long-term property investments.
Greater Flexibility
You may be able to move to a different area without having to sell your current home immediately.
What Are the Disadvantages of a Let to Buy Mortgage?
Becoming a Landlord
Owning a rental property comes with responsibilities, including maintenance, safety requirements and compliance with landlord regulations.
Mortgage Costs
You will usually be responsible for two mortgages, even if rental income covers much of the cost.
Rental Void Periods
There may be times when the property is unoccupied and no rental income is being received.
Additional Fees and Taxes
There may be valuation fees, legal costs, arrangement fees and tax implications associated with becoming a landlord.
Lending Criteria Can Be Complex
Not all lenders offer Let to Buy products, and affordability assessments can be more detailed than for a standard residential mortgage.
Do You Need Permission from Your Existing Lender?
If you currently have a residential mortgage, you cannot usually rent out the property without informing your lender.
Depending on the circumstances, your lender may:
- Grant Consent to Let
- Require you to switch to a buy-to-let mortgage
- Require a full Let to Buy arrangement
It is important to obtain approval before letting out a property that is currently subject to a residential mortgage.
Who Might Consider a Let to Buy Mortgage?
A Let to Buy mortgage may be suitable for homeowners who:
- Want to move home without selling their current property
- Have built up significant equity
- Wish to become landlords
- Want to generate rental income
- Are looking to build a long-term property portfolio
Is a Let to Buy Mortgage Right for You?
A Let to Buy mortgage can offer flexibility and investment opportunities, but it is important to understand the financial commitments and responsibilities involved.
Before proceeding, it is worth considering the costs of becoming a landlord, the potential risks of rental voids and whether the arrangement remains affordable if circumstances change.
Need Mortgage Advice?
Let to Buy mortgages can be more complex than standard residential mortgages. A qualified mortgage adviser can help you compare lenders, assess affordability and determine whether a Let to Buy mortgage is suitable for your circumstances and future plans.