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Let to Buy Mortgages Explained

Written by

3rd Jun 2020 (Last updated on 2nd Jul 2020) 6 minute read

Let-to-buy mortgages are for those looking to let out their current property and buy a new one at the same time. You will need to take out two different mortgages, one so you can let out your current property, and the other to purchase a new house. The criteria differs slightly to traditional mortgages and you’ll need to come up with a bigger deposit.

Compare My Move work with a team of property industry experts to bring you the most up to date and accurate advice on moving house. This guide explains what a let-to-buy mortgage is, the required criteria and the advantages and disadvantages. 

This article will cover the following:
  1. What is Let-to-buy?
  2. How Does Let-to-buy Work?
  3. How Much Can I Borrow For A Let-to-buy Mortgage?
  4. What Is The Criteria For A Let-to-buy Mortgage?
  5. What’s the Difference Between Let-to-buy and Buy-to-let?
  6. When Would You Use A Let-to-buy Mortgage?
  7. What Are The Advantages Of Let-to-buy Mortgages?
  8. What Are The Disadvantages Of Let-to-buy Mortgages?
  9. Let-to-buy Mortgages and Stamp Duty
  10. Let-to-buy Mortgage Lenders
  11. Save Money On Your Move With Compare My Move

What is Let-to-buy?

Let-to-buy is an ideal option if you’re looking to purchase a new property whilst keeping your current property to let it out. It will allow you to release some equity from your current home to use as a deposit for your new home.  

The idea is that the rental income you make from letting out your current property will cover your mortgage repayments on that property. This will allow you to take out a mortgage on your new property if you can afford it.

Let-to-buy mortgages are becoming more popular in recent times, with mortgage lender Trinity Financial, reporting a 15% increase in the sale of let-to-buy mortgages in the last half of 2019.

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How Does Let-to-buy Work?

A Let-to-buy mortgage means you will be applying for two different mortgages at the same time. You will first need to remortgage your current home with a let-to-buy deal so you can let out that property. Next, you will need to apply for a traditional residential mortgage for the property you’re moving to.

Mortgages for let-to-buy will allow you to release equity from your home by borrowing at a higher Loan To Value (LTV). For example, if your current property is valued at £200,000 with a mortgage of £130,000, this means you can borrow £150,000 and use the extra £20,000 towards a deposit for your new property.

How Much Can I Borrow For A Let-to-buy Mortgage?

For a let-to-buy mortgage, you can typically borrow 75%-80% of the value of your current home you plan to let out. This means you can use some equity from your current property to pay towards the 20%-25% deposit for your new home.

What Is The Criteria For A Let-to-buy Mortgage?

To apply for a let-to-buy mortgage, your eligibility will be based on how much income you can make on letting out your property, instead of your salary. Below we have listed the criteria for a let-to-buy mortgage.

  • Minimum age is usually 25.
  • Maximum age limit is 70-75.
  • Requires a 20%-25% deposit or equity.
  • Borrow limit of 75%-80% of the value of your current property.
  • Rental income must be around 125% of mortgage interest.
  • Some lenders will require a letter from your letting agent to prove expected income from letting out the house.
  • Evidence that will be earning higher on rent than your mortgage payments.
  • Evidence of your new property purchase.

What’s the Difference Between Let-to-buy and Buy-to-let?

Let-to-buy and buy-to-let are both mortgages for those looking to let out property, but they differ slightly. 

With let-to-buy mortgages, you are looking to let out your current property and buy a new home for you to live in at the same time. 

With buy-to-let mortgages, you will already have somewhere to live, whether you’re renting or have paid off your mortgage, but are looking to buy a new house with the intent to let it out. 

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When Would You Use A Let-to-buy Mortgage?

Let-to-buy mortgages are ideal if you don’t want to or are struggling to sell your home before buying a new one. They’re also popular with couples who both own a property and want to live together. If you think you can’t afford the cost of selling a house, then let-to-buy might help. Below we’ve listed some other reasons you may need a let-to-buy mortgage.

  • You urgently need to move house but can’t wait to sell your current house.
  • Poor market conditions are making it difficult to sell your house.
  • You have to move house for a job but plan to move back to your current house.
  • You and your partner want to buy a house together but also want to both keep your current properties.

What Are The Advantages Of Let-to-buy Mortgages?

Let-to-buy mortgages will be more suited to certain situations. Many people take out let-to-buy mortgages so they don’t have to rush for a quick sale. Here are some other advantages of using a let-to-buy mortgage.

  • If you’re in a property chain and need to sell your house before you can buy your new home, a let-to-buy mortgage will ease some time pressure. 
  • Let-to-buy mortgages allow you to benefit from earning rental income as well as building equity in both properties.
  • If house prices increase on both properties in the future then you have a chance of selling both homes for a profit.

What Are The Disadvantages Of Let-to-buy Mortgages?

You will own two properties with a let-to-buy mortgage, making the risk of house prices falling more daunting. We’ve listed some disadvantages of let-to-buy mortgages to help you weigh up your options.

  • You will essentially be paying two mortgages, so staying on top of your finances is important.
  • As you will be owning two properties, if house values fall you will be worse off.
  • Let-to-buy mortgage interest rates typically aren’t as low as traditional mortgage rates.
  • As it’s classed as high risk to lend two mortgages, not many lenders offer a let-to-buy mortgage so you may find it difficult to arrange one.
  • When you buy your second property, you will be required to pay an additional 3% Stamp Duty.

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Let-to-buy Mortgages and Stamp Duty

You will have to pay Stamp Duty when you purchase your second property, as you will own two homes. As of 2016, you will be required to pay an additional 3% Stamp Duty when you purchase a second property.

However, if you sell your first property within 36 months of completing on your second property, HMRC will issue a refund on the Stamp Duty that you paid. You can complete the Stamp Duty refund form here.

It’s important you budget your Stamp Duty Costs into the total cost of buying a house to ensure you can afford it. To work out how much Stamp Duty you’ll have to pay when you take out a let-to-buy mortgage, use our handy Stamp Duty calculator

Let-to-buy Mortgage Lenders

Let-to-buy mortgage rates and deals change regularly to match competition in the market. As let-to-buy mortgages still aren’t offered by many mortgage lenders, it could be worth getting professional advice and guidance from an expert mortgage adviser.

The Mortgage Works, a specialist lender of Nationwide Building Society, currently offer let-to-buy mortgage deals with a maximum LTV of 80%. As part of their criteria, applicants must have owned and lived in their current property for at least 6 months.

It’s important that you hire a licensed conveyancer to help with your new property purchase, they will be able to provide expert legal advice throughout.

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Martha Lott

Written by Martha Lott

Having written for Huffington Post and Film Criticism Journal, Martha now regularly researches and writes advice articles for everything moving house related.