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Let to Buy Mortgages – What you need to know

It’s one thing getting on the property ladder yourself, but if your aim is to become a landlord there’s additional information you need to know before getting a let to buy mortgage. 

Purchasing a home that you wish to rent out can be a great investment strategy – it generates an income independent of your other jobs, and if you get it right, allows you to save while also having a valuable asset for your future. You may have been through the process of obtaining a residential mortgage before, but let to buy mortgages are a little bit different.  

This article will give you the information that you need to make the right decisions for your financial future. 

What Is Let To Buy?

Let to buy refers to the process of purchasing a new home to live in, while you rent out your existing property as a landlord. There are a few steps to this process:

  • Converting your current mortgage deal to a buy to let mortgage
  • Renting out your home to new tenants
  • Securing a second residential mortgage to purchase a new home

If it sounds complicated, that’s because it can be. If you have never rented out a property before, there’s a lot to know about becoming a first-time landlord, and you will have a financial pressure of managing two mortgages at once. However, when done right, this move can secure your long-term future.

When Would You Consider A Let To Buy Mortgage?

There are lots of compelling reasons that people want to go through this process. These can include:

  • When you’d like to purchase a new home with your partner but also keep your current home
  • If you need to move somewhere else for a few years, perhaps for a job, but you will be moving back to your former home at some point in the future
  • You’re struggling to sell your home and need to move due to circumstances
  • If you have a good amount of equity in your current property and want to use this to help you move to a new home, while also keeping your current home as a long-term investment

It is easy to confuse this type of mortgage with buy to let, where you take on one mortgage on a new property that you are renting out. A let to buy mortgage is specifically to allow you to keep and rent out your home while also buying a new one.

Let To Buy Mortgages – The Criteria

If this plan sounds good to you, then you’ll need to qualify for a let to buy mortgage – either converting your existing residential mortgage if your lender allows, or finding a new one. Let to buy mortgages are quite niche, and not every lender offers them. Working with a mortgage broker will give you more options and expert knowledge on which lenders are best suited to your circumstances. Eligibility for a let to buy mortgage is based on factors such as the following:

  • Higher rental income than mortgage payments: You’ll need some proof that the rental income you can expect to generate from your property exceeds the monthly repayment rate. This is usually calculated at around 145% of your expected monthly repayments.
  • Mortgage offer for your new home: Lenders will usually need to see a copy of the mortgage offer on your new property before agreeing to a let to buy mortgage on your existing home
  • Upwards borrowing limit: Usually, lenders will only be prepared to loan around 80% of the value of your current home, so if you want to release equity when remortgaging you will need to include this in your calculations
  • Your age: There is a maximum age limit of around 75 on any of these transactions
  • Conveyancing: Occasionally, lenders might require the same solicitor to be used for the conveyancing on both transactions.

How Can A Mortgage Broker Help You Secure The Right Let To Buy Mortgage?

There are a number of variables when it comes to pulling off this rather complex arrangement. You need to be sure of all your options, and that you are securing the best possible deal available to you. A specialist mortgage broker can help to guide you through the process. Scanning the whole of the market for the most applicable deals on both your let to buy and new residential mortgages, a broker can also help to manage the process, dealing with complex paperwork and requirements and ensuring that you complete your arrangements on time. There are also matters such as landlord mortgage tax relief which your broker can explain. Looking at all your options means that you can be sure of getting the best deal for you and setting up a better financial future.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Commercial and Buy to Let Mortgages are not usually regulated by the Financial Services Authority.