Let to Buy
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Let to Buy Mortgage – when are these a suitable approach
There are a few situations where Let to Buy can be a useful option for buying a home. It’s a less common approach, but if you already own a property and are looking to move, it could be worth considering.
What is a Let to Buy Mortgage?
A Let to Buy mortgage is technically two mortgages – a standard residential mortgage to buy a new home, plus a Buy to Let product on your existing property. It’s a way to buy a new home and keep your current property as an investment.
Let to Buy is also a way to release equity from your existing property and put it down as a deposit on the new home. In this case you usually need to take both mortgages with the same lender.
Is Let to Buy right for me?
Typical situations where Let to Buy can be a feasible option include:
- Where you have struggled to sell your current property
- If you want to keep your first property as an investment
- When you have good equity and don’t want to sell your home to release it
- To avoid a downward property chain
In addition to a certain level of equity, you also need additional savings to cover the extra stamp duty, legal costs and mortgage fees for the onward purchase.
What are the lending criteria for a Let to Buy Mortgage?
Getting a Let to Buy deal involves meeting two sets of lending criteria – one for the residential mortgage and one for the Buy to Let product.
On the residential mortgage, your lender will want to confirm affordability by seeking proof that you can comfortably afford the repayments on your new mortgage. They will also look at your credit record.
The main criteria for a Buy to Let mortgage is that the rental income from the property covers 125% or more of the monthly mortgage payments. You will also need to contribute a deposit of at least 25%.
Further specific criteria may depend on the lender, such as age limits and restrictions on the type of property. Part of our role as a Mortgage Broker is to find mortgages that match your specific needs.
Can I just change my current mortgage to a Buy to Let?
Some lenders do allow you to convert your existing mortgage to a Buy to Let product. While this approach can be simpler, it’s not necessarily the best route to a competitive mortgage deal. Speak to a broker to explore all the options.
The main options for Let to Buy are to:
- Switch your current mortgage and get a new, separate mortgage for the new home
- Take both mortgages with a single lender
- Arrange each mortgage separately
We will recommend the options that will give you the most value.
What if I only want to rent out my property for a short period?
If you only plan to rent for a short time, Let to Buy may not be the best option. Many mortgages involve an early repayment charge – which is a large fee you pay if you exit your deal early.
Start by exploring whether you can get ‘consent to let’ from your current lender and how it would work. If you can’t switch mortgage type, you could look for a flexible Buy to Let mortgage with no early repayment fee. It might be that you can’t make this kind of mortgage work for your situation. Another option could be to take out a Bridging Loan.
What are the stamp duty costs?
Buying a second property means you have to pay a lot more stamp duty – an additional 3%.
Standard stamp duty on a £400,000 home is £10,000, but when it’s a second property, the duty rises to £22,000.
Are there other drawbacks to Let to Buy mortgages?
Owning two properties is a good investment for the future, but it does mean you face twice the property costs. In addition to repairs, furnishings, maintenance and insurance costs you’re responsible for two sets of repayments on your mortgage.
Another disadvantage is that not all lenders offer Let to Buy, which means there is a narrower choice of deals to choose from. That could mean you have to accept less competitive mortgage rates.
You also need to remember to complete an annual tax return on the income from your Buy to Let property. Some people choose to hire an accountant to do this for them.
How can The Mortgage Centre help with Let to Buy?
We are here to help you explore all the options around letting out your existing home and buying a new property to live in. We compare mortgage products from both high street and specialist lenders to recommend a good value approach that works for you.
We’ll help you time the mortgages right so that you can move tenants in soon after you move, and we support you through the application process and beyond. Contact us for expert mortgage advice today. The Mortgage Centre is fully authorised and registered in England.
Your property may be repossessed if you fail to keep up the repayments on your mortgage.
Speak To An Expert
We’re able to tap into our local knowledge to guide you through your house purchase in your chosen area.
How can I improve my chances of getting good mortgage rates?
As with any mortgage, the more deposit you have, the better. A 10% deposit is good, but if you can reach 15% to 20% more lenders will want your business, so you will get better interest rates.
It’s worth comparing different types of mortgage, too. While a fixed rate deal gives you consistency and a predictable monthly spend, repayments can be cheaper with tracker mortgages, based on the Bank of England base interest rate. Discounted mortgages can also offer good rates, although the lender controls whether they increase or decrease.
Your credit rating is also an important factor in the rates you’re offered. If you have any credit issues, you may get less competitive rates.
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How can The Mortgage Company Brokers help with Contractor Mortgages?
Mortgage Brokers are specialists in mortgage advice and know the market well. It’s our job to do all the legwork and secure a mortgage that works for you.
The contractor mortgage market can be a little bit complicated, where your own specific situation will help direct the search for a good mortgage deal. We’ll get to know you and your property plans and compare lots of options to find good mortgage products.
The Mortgage Centre is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority, you can trust us to take away the hard work of finding a mortgage to suit you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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