Let-to-buy mortgages allow you to buy a new home without having to sell your current one. Learn how to let your property out if you want to do so.

What exactly is let-to-buy?

Let-to-buy is the practise of renting out your current residence while simultaneously purchasing a new one.

In essence, it means taking out two loans at the same time. To be able to rent out your current property, you convert your existing mortgage to a buy-to-let mortgage. You then take out a conventional residential mortgage to purchase your new home.

Let-to-buy has a number of drawbacks, including the expenses and difficulties of becoming a landlord and the necessity of managing two mortgages at once.

Reasons to think about using a let-to-buy strategy

There are a variety of reasons to think about a let-to-buy transaction.

If you’ve built up equity in your home, you may be able to utilise it to buy a new home, but you may also choose to keep it as a long-term investment.

It is possible that let-to-buy is a viable option for homeowners in the following scenarios:

The sale of your current property is a top priority since you need to move as soon as possible.
Because of the state of the market, you’ve had difficulty trying to sell your house.
You’d like to buy a house with a friend, but you’d like to keep ownership of your current residence.
After a few years away, you intend to return to your home in the future.
What is the difference between buy-to-let and let-to-buy?

Both let-to-buy and buy to let sound similar, but they’re actually quite dissimilar.

Buy-to-let vs. let-to-buy: Which one is better for you depends on what you want to do with the property you’re renting.

These loans are referred to as “let to purchase mortgages.”

As a result, you can’t simply rent out your home and buy another one without first changing your mortgage, as doing so would violate the conditions of your home loan. This is the biggest problem with let-to-buy.

Instead, you’ll have to seek approval to let or convert your residential mortgage into a buy-to-let deal. Buy-to-let mortgages tend to be interest-only, rather than repayment, and interest rates tend to be higher than those for residential mortgages.

You may face further difficulties if you plan to use equity from your current home as a down payment on a new one.

Purchase-and-rental loan conversion

You may be able to transfer to a buy-to-let mortgage with your current lender, but you will need to have your finances reevaluated in light of the lender’s buy-to-let standards.

It’s possible to remortgage to another lender if you can’t get a buy-to-let agreement with your present lender; however, you may have to incur early repayment penalties if you’re still in the introductory fixed term of your mortgage.

Some lenders have developed specialised mortgages for those who want to buy a home while renting it out, removing some of the stress from the process.

Criteria for lending money to people who want to buy a house but don’t yet have the funds to

The amount of rental revenue you can generate from the house you’re renting out will determine your eligibility for a buy-to-let mortgage rather than your personal income.

There are only a few lenders offering specialised let-to-buy mortgages, and in order to qualify, you’ll need to meet the following requirements:

Remortgaging will allow you to release equity up to 80% of your present home’s worth, so keep this in mind when figuring out how much you can borrow.
Most lenders require rent to cover at least 145 percent of the monthly mortgage payments, which is proof that you’ll be able to afford your home.
A copy of your new home’s mortgage offer will normally be requested as proof that you’re also changing your mortgage.
In some cases, lenders need the use of the same lawyer for both transactions, although this isn’t usually the case.
Typically, the upper age limit is 70 or 75.
Is a mortgage broker required for a let-to-buy deal?

Because there are so many variables in a let-to-buy transaction, you should consult with a mortgage broker who has access to the entire market before making a final decision.

A skilled mortgage broker will be able to oversee the entire process from start to finish, ensuring that both mortgages may be completed at the same time.

Brokers have access to bargains you won’t find on the high street for buy-to-let mortgages that aren’t available directly from the lenders themselves.

Is it possible to get both of your mortgages from the same company?

When you use a let-to-buy strategy, you may have to deal with two or three different mortgage lenders at once, which might make it difficult to complete your transactions on time.

It is possible for some lenders to provide you with both a buy-to-let and a conventional mortgage.

With The Mortgage Works (Nationwide’s buy-to-let arm), you can transform your existing residential mortgage to a buy-to-let contract and then take out a residential mortgage on your new home with Nationwide as well.

This service may be offered by other suppliers, but they may not make this clear on their site. Another good reason to see a mortgage broker is to avoid making a costly mistake.

Consent to lease and let-to-purchase agreements

Consent to let may be granted by some lenders in situations where renting out your home is only for a short time (e.g. while you are trying to sell it), thus a buy-to-let mortgage may not be necessary.

You can’t rely on this, though, because your lender’s policy and your motives for requesting are both factors.

It’s possible that your provider will grant temporary consent to let if you’re going to be away for a year for work and then returning to your home.

Instead of being accommodating, the lender may insist on a buy-to-let mortgage if you are purchasing a new house for your own use.

With a let-to-buy mortgage, you can become a landlord.

As a landlord, you’ll be responsible for everything from finding renters to maintaining the property, which is one of the biggest obstacles of let-to-buy.

Our guide on how to become a landlord covers all the specifics, but to get you started, consider the following things:

Stamp duty on the purchase of a rental property

A 3% buy-to-let stamp duty surcharge will be added to the purchase price of your new home. It’s imperative that you budget for this because it can add thousands to your initial price.

Due to the fact that you will be purchasing a second house (even if you intend to live in it yourself), you will be subject to the surcharge.

You can get the difference between what you paid and the usual home mover rates back if you sell your original property (the one you’re renting out) within three years.

calculating the final result

You need to make sure that letting to purchase is a reasonable and cost-effective decision before embarking on a buy-to-let venture.

If you don’t plan on handling the tenancy yourself, you’ll have to pay a letting agent to do so.

Due to the ban on tenant fees that went into effect in June 2019, landlords may have a more difficult time finding tenants.

Self-assessment tax returns for rental income are also a consideration. Landlords face additional challenges in this area because the government is now limiting the amount of mortgage interest that can be deducted from your tax statement.

The let-to-buy option isn’t the only one available.

You may want to consider staying put if you’re having trouble selling your home but don’t need to move in the near future.

If let-to-buy is out of your price range, you may want to think about making changes to your house in order to raise its resale value.

Because interest rates are so low right now, remortgaging your house to pay for renovations or improvements instead of taking out a personal loan may be a smart financial decision for you.

However, not all changes will increase the value of your home, so you should consider the benefits and drawbacks and learn about your local real estate market before making any modifications.