Let To Buy Mortgage
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Get in touch for an initial fee free, no-obligation chat with an adviser about the most suitable mortgage option for you.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
Your property may be repossessed if you do not keep up with your mortgage repayments.
Let To Buy Mortgage
Anthony McQuilliam explains Let to Buy mortgages and answers some frequently asked questions.
Podcast approved by The Openwork Partnership on 24/7/24.
What is a Let to Buy mortgage? How do they work?
Some people own a property at the moment and they want to upsize to a bigger place for their family, but don’t want to let go of their current property.
With Let to Buy they can rent the current property out. With the right lender, it’s possible to release further funds from the new Buy to Let mortgage as a deposit on the new property. Then, when you move, you’ve got your new residential property and you’re also generating cash flow from your old property as a Buy to Let.
What’s the difference between Let to Buy and Buy to Let?
In theory, once the mortgage is through, it’s the exact same thing. You’ve got a property that you’re renting out to generate income for yourself.
A Buy to Let mortgage allows you to buy a new property and rent it out to tenants, where you become a landlord and generate new cash flow. When you’re going down the Let to Buy route, the difference is that you’re renting one property out to buy a new home to live in. You get the same result – a property to rent out.
Who is a Let to Buy mortgage for?
A Let to Buy could suit somebody that is looking at moving to a new property and they are either struggling to sell the current home or they’ve got an emotional attachment to it. Perhaps they just can’t let it go. Maybe their children were born there or it’s been a family home forever.
They will also have equity tied up in the current residential. Unless they’ve been able to save a deposit to buy a new bigger, better family home, they would need to release funds from the current property for a deposit.
The maximum Loan to Value is 75%. When you do turn your property into a Let to Buy, you can release money on the remortgage to put down a bigger deposit – it could also cover the additional stamp duty fees, solicitors’ costs and mortgage broker fees.
What criteria do I need to meet for a Let to Buy mortgage, how much deposit do I need and how much can I borrow?
With Let to Buy there are two transactions – the part where you’re renting the property out and then where buying your new residential.
The maximum mortgage you can get is all based on stress tests. We need to figure out how much your property will rent out for, to assess the maximum you can borrow.
In terms of the deposit, which comes down to how much equity you need, there’s usually a maximum of 75% Loan to Value. A couple of lenders recently have been quite flexible with this, especially if you’re a higher rate taxpayer.
For a Let to Buy mortgage, because the interest rates are now higher, the rent now needs to be more to release the money that you need. Some lenders now allow you to sell your property to a limited company to rent out, which makes the stress testing for your rental income and mortgage payments more relaxed.
Usually, you can borrow a lot more that way and you’ve got more money to put down as a deposit on your new property [podcast recorded in June 2024].
Once you’ve been able to release the funds based on the rental property, the next step is getting your mortgage agreed on the residential you’re buying. That’s just standard mortgage criteria.
We check that your income matches up and usually you can borrow 4.5 to five times your annual income. We also make sure your credit is in a good position: you’ve not had any recent missed payments and you’re not behind on your mortgage.
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What are the pros and cons of a Let to Buy?
A massive benefit is that you’ve now got an asset that is generating you income while you’re buying your new property. If everything works out perfectly you’ll receive cash flow to contribute towards your new residential mortgage.
Obviously, you’ve now got two properties, and if house prices increase in the long run you’re getting that increase across both.
The downside is that you’ve now got two mortgage payments to deal with. If your tenant doesn’t pay, you need to be able to afford to pay both mortgages. It’s a good idea to make sure you’ve got a financial buffer to avoid falling behind.
Can I get a Let to Buy mortgage with bad credit?
Yes, although it limits your options – not all lenders will do it. Plenty of banks solely specialise in people with bad credit or who have missed a few payments.
You may be charged slightly more on the initial fixed term product, whether it’s for two, three or five years, but as long as you get the mortgage over the line, you can show that you’re keeping up with your credit.
Once your fixed rate has expired, you’ve always got the option to potentially remortgage to a high street lender for a more preferential deal.
Can I get a Let to Buy mortgage as a First Time Buyer?
No, you wouldn’t be able to.Let to Buy is based on already owning a property – so you can’t be a First Time Buyer.
If you’re buying a first property and renting it out, that would be a Buy to Let. It’s only Let to Buy if you already own the property and live in it – you’re now turning it into a rental property and moving on.
How does remortgaging a Let to Buy work?
It’s pretty much the exact same process as a standard remortgage. The only difference is that your mortgage would currently be on a residential mortgage and you would then turn it into a Buy to Let.
They still want to double check that the rental income is enough and that you don’t take the Loan to Value over 75%.
There’s two parts to it – once you get your Let to Buy remortgage sorted out, you then need to assess the second part of the process, the mortgage for the new property you’re buying.
What are the alternatives to Let to Buy?
It depends on the situation, really. The alternative to Let to Buy is just to sell your property and use all that money to buy a new home to live in.
If you’ve got any money left over, you could then buy a Buy to Let, if that’s your goal.
What else do we need to know about Let to Buy?
The only other bit of advice if you are looking at the Let to Buy route rather than selling your property, is to have a conversation with a mortgage broker.
When it comes down to the stress tests and affordability with certain Buy to Let lenders, going directly to one bank may not mean you can borrow the money you need to go forward on the new property.
A specialist Buy to Let broker will assess your entire situation and have a look at multiple different lenders, rather than just one.
Approved by The Openwork Partnership on 24/7/24.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET AND LET TO BUY MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
