All You Need To Know About Let to Buy Mortgages

What is a Let to Buy Mortgage?

A Let to Buy mortgage enables you to let out your current home to tenants, whilst taking an additional loan to move house. Sometimes the rental yield from your old property will cover the repayments on your new one, making a move more affordable. 

With a Let to Buy Mortgage, you have two mortgages, usually with the same lender, simultaneously. It is possible to borrow each mortgage from separate lenders as this can potentially allow for a more competitive deal.

Is Let to Buy right for me?

There are a variety of reasons that you may choose a Let to Buy mortgage, perhaps you don’t want to sell the family home or have to relocate quickly due to work. A slow market could also mean that you are struggling to sell your home, so this option gives you an opportunity to move without having to wait for a sale.

For whatever reason that you might decide to rent out your own residential property, in order to legally do so, you will need a Let to Buy mortgage in place. It’s important to consider that Let to Buy is only usually an option if you have enough equity in your current property.

What is the lending criteria of a Let to Buy Mortgage?

Mortgage lenders require fairly strict lending criteria to be satisfied in order to become a Let to Buy landlord. These vary from lender to lender, but typically include:

• Your age is usually a factor, with most lenders only accepting those aged twenty-five to seventy-five years old.

• You will need an onward purchase Mortgage in place

• You will usually need to have lived in your current property for a minimum period of at least six to twelve months.

• You will usually be asked to provide proof that the rental yield from your existing property is substantial enough to cover the mortgage repayments on your new home, from a letting agent registered with the Association of Residential Letting Agents (ARLA).

• Even though your old property should cover the mortgage payments on your new mortgage, you will need to meet minimum affordability criteria, You will typically need a salary of £25,000 however some lenders do not have minimum income requirements subject to other requirement, but you will need a good credit score.

• You are able to release equity from your existing home typically up to the value of 75% of the property value, which you could use towards the deposit on the onward purchase. 

• Are there any drawbacks to Let to Buy mortgages?

As Let to Buy Mortgages are considered higher risk., the interest rates tend to be higher than those on a standard residential mortgage. There are also a number of tax implications related to becoming a landlord and it’s recommended that you seek tax advice before deciding whether Let to Buy is right for you.

You should consider that you will still have to make mortgage repayments even when you have no rental income, as all rental properties will experience some periods of vacancy. Another thing to bear in mind is the additional responsibility of becoming a landlord, including the time and expense of property maintenance.

What about Buy to Let stamp duty?

Any homeowner with more than one property is liable to pay an additional 3% Stamp duty on every additionally purchased property. This includes those with Let to Buy properties, so it’s worth considering the extra stamp duty charge before making a decision about whether it’s the right option for you.

Are there any alternatives if I can’t switch?

Buy to Let

A Buy to Let mortgage is generally used to buy a new property to let out for profit, however, in some cases, you can remortgage your existing property as a Buy to Let property. You will not be able to move back into the property, however, unless you remortgage it again to a residential mortgage.

What if I only want to rent out my property for a short period?

If you only intend to let your property for a short period of time, then you may be able to obtain Consent to Let from your Mortgage Lender. 

How can Choice Finance help with your Let to Buy Mortgage?

Let to Buy Mortgages are complex to arrange and can be confusing, especially for first time landlords. Here at Choice Finance, we can manage much of the application process for you, both in terms of administration and communicating with all of the different parties involved in arranging two mortgages.

As a Mortgage Broker that has access to a wide variety of both high street and independent Mortgage Lenders, we can ensure that you find the competitive deal that is most suited to your individual circumstances.

A mortgage is a loan secured against your home. 

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.