Let To Buy Mortgage

Let To Buy Mortgage

A Let to Buy mortgage is a type of mortgage that allows you to purchase a new home whilst keeping your existing home and converting it into a rental property. This is often used by homeowners who want to move into a new home but don’t want to sell their existing property.  You may want to move in with a new partner but also want the security of keeping your current home or may simply want to hold onto your current residential as you think it would make a great investment property.

Alternatively, you may have found a property you love but don’t have time to sell your current home.  Whatever the reason, our experts here at The Mortgage Masters can help you navigate the mortgage market to help you achieve your future goals.

When should I consider a Let To Buy Mortgage?

There are a number of reasons why you may consider a Let to Buy Mortgage, some of which are outlined below:

• You want to buy a home with your partner but want to keep your current home for security for investment purposes.
• This move is temporary and you want to move back to your current home at some point.
• You have struggled to sell your home but think it could make a good rental property.
• You need to move in a hurry and don’t have time to sell your home.
• You may want to start or expand your property portfolio by renting out your current home.
• You may be looking to upsize or downsize but don’t want to sell your current home.

How does a Let to Buy Mortgage Work?

Current Property: Convert your current property to a Rental Property (Buy to Let). You take out a Let to Buy mortgage on your existing home. This allows you to remortgage it, freeing up equity that can be used as a down payment for a new property. Your current home will then be rented out to tenants.  The Let to Buy mortgage could be used to pay off your existing residential mortgage and release additional funds.

New Property:  You can use the equity released from your existing home as a deposit on your new residential mortgage.

What’s the difference between a Let to Buy Mortgage and a Buy to Let Mortgage?

The terms “Buy to Let” and “Let to Buy” mortgages sound similar, but they serve different purposes and are used in different scenarios.

A Buy to Let mortgage is used when you want to purchase a property specifically to rent it out to tenants, rather than living in it yourself.  These mortgages are usually sought by investors who want to purchase properties for the purpose of renting them out to generate income.

In contrast, a Let to Buy mortgage is used when you want to move to a new home but keep your existing property and rent it out. This allows you to let (rent out) your current home while buying a new one to live in.

What is the lending criteria for a Let to Buy?

Lender each have their own set of criteria but typically the following will apply: Like all mortgage types, whether you’re choosing a Let to Buy mortgage for the first time, or refinancing with one, there’s a strict set of criteria you’ll need to meet in order to be approved. Many lenders differ, but here’s a standard list of what they may demand:

• Minimum age: 25 (for most lenders)
• Maximum age: 75 (for most lenders)
• A large deposit (or equity), usually around 20-25%
• To pass the individual lender’s affordability assessment
• Proof that the rent received will be higher than the mortgage payments. The rent should cover 125% if you are on the basic rate, or 145% of these if you are a higher-rate taxpayer.
• Proof that you are buying a new home at the same time as converting to a let-to-buy. If you are not buying another property, then some lenders will still consider you by taking into account another onward plan, e.g., moving away for work.
• The same solicitor is to be used for both transactions.

How much deposit do I need for a Let To Buy Mortgage?

Typically, you’ll need 25% or more of the property’s purchase price as a deposit for a buy-to-let mortgage. However, you may find some lenders who accept a 20% deposit.

Do you have to stamp duty on a let to buy?

Yes, you have to pay stamp duty if you buy a new property and remortgage to let-to-buy on your existing mortgage. In fact, you’ll have to pay the 3% stamp duty surcharge as you’ll be buying a second home.  A solicitor can advise you further on any stamp duty due.

How do I know if I will get enough rental income to apply for a Let to Buy mortgage?

To determine the potential rental income for a property, it’s advisable to consult with a letting agent. For a more precise estimate, mention that you are considering hiring them to manage the property and ask for their opinion on the appropriate rent. To get a well-rounded view, seek estimates from at least three different agents.

Can I get a Let to Buy with bad credit?

Absolutely! There are many specialist mortgage lenders who are open to working with clients despite a less-than-perfect credit history, including for Let to Buy mortgages. While your options might be more limited compared to those with excellent credit, there are still possibilities available. Given the complexity of credit issues, it’s crucial to consult with an expert early in the process.

Not all lenders are happy to lend on a Let to Buy basis, and of those that will, most will only deal with brokers, not direct with customers.  Here at The Mortgage Masters, our experts are here to guide you through the mortgage process and seek out the best lender for your circumstances to give you the best possible chances of mortgage success.