Imagine you could buy a house and rent it out, while still living in your current home. That’s the power of a let to buyLetting out a property that the borrower previously lived in... mortgage! 

Let to buy mortgages are a type of mortgage that allow you to buy a property to rent out, while still living in your current home. This can be a great way to get started in the property investment market, or to expand your existing portfolio.

If you’re interested in learning more about let to buy mortgages, this article is for you. We’ll cover everything you need to know, from how they work to what the benefits and risks are.

Let to Buy Mortgage Explained

Let to buy mortgages may be the ideal solution if you are looking for a way of releasing equity from your current home while moving to a new property. However, it’s important to understand that these specialist mortgages require careful consideration before being taken out.

When assessing affordability, lenders will likely take into account the rental income generated by the home you are letting as well as the monthly mortgage

A let to buy mortgage can be a great way to move up the property ladder, and make your dream of owning a new home come true. However, it is important that you plan carefully and take into account the various costs and considerations associated with such a mortgage product.

It is essential that you are able to demonstrate not only that you have sufficient rental income from your current property

What are let to buy mortgages?

If you have owned your existing home for a while, naturally, you are likely to have grown fond of it. More often than not, its value has increased in line with the overall increase in house prices. As you have been paying off your mortgage, so your equity in your current property is also likely to have increased.

So, a home that you have grown to love and one that has increased in value may be one that you want to hold on to as a long term investment if you decide to move home. Not only that, but it might also give you the chance to release some of the equityThe difference between the value of the property and the amo... in your current home to buy the new, second property.

How does a let to buy mortgage work?

Let to buy mortgages offer you the opportunity of doing precisely that. As the term suggests, this type of mortgage is based on your letting your current home. So, its value continues to work hard for you through the income stream from rents, and you also release some of the equity you own in that home as the foundation for the mortgage that allows you to buy your new home.

It is not a standard residential mortgage.

As Which? magazine explained in an article dated September 2019, let to buy mortgages are effectively two mortgages wrapped up in one:

• a buy to let mortgage, founded on the rental income you intend to generate from your current home; and

• a new, regular residential mortgage for the purchase of your new home.

Who may a let to buy mortgage be suitable for?

A buy to let mortgage might be especially helpful if you want to move home but are having difficulty selling the house in which you currently live.

Even if you have not managed to sell the current home, you can still release the equity that has been built up in it by using it to secure a buy to let mortgage and running your former home as a business. The let to buy mortgage then gives you sufficient deposit to purchase your new home at a higher loan to value (LTV) ratio than you might otherwise enjoy.

In short, let to buy mortgages might be attractive if:

• you want to release equity in your current home;

• you want to move to a new residential property, but are having difficulty in selling your present home or have a problem in the property chainA sequence of property purchases and sales that are linked t... you are seizing the business opportunity of using your current home as a source of income (from the rents you will receive); or

• although you are intent on buying a new home, you want to leave open the option of returning to live in your former home in the future.

Is a let to buy mortgage the same as a buy to let mortgage?

The terms might appear similar, but there is a world of difference between a let to buy mortgage and a buy to let mortgage.

A buy to let mortgage is based on the sole business purpose of owning a property which you can let to tenants for the generation of rent. A let to buy mortgage involves letting the home in which you currently live to generate the rent with which you will help to repay the mortgage on a new home you want to buy.

Which are the most suitable let to buy mortgage lenders in the uk?

The most suitable let to buy mortgage providers in the UK will vary depending on your individual circumstances, such as your income, credit score, and the type of property you are buying. However, some of the most popular let to buy mortgage lenders in the UK include:

• Barclays
• Halifax
• HSBC
• Lloyds Bank
• NatWest
• Santander
• Virgin Money
• Accord Mortgages
• Nationwide Building Society
• Yorkshire Building Society
• Paragon Bank
• TSB Bank

These lenders offer a wide range of let to buy mortgage products, with different interest rates, terms, and features. It is important to compare the different products available to find the best deal for your needs.

We will also suggest you to contact a mortgage broker to help you with the application process.

How much can I borrow on a let to buy mortgage

It may be worth saying again that any mortgage based on the potential for your property to earn an income from rent is calculated regarding that business purpose – in other words, whether your rental income will cover the mortgage repayments.

According to statistics released by the Financial Conduct Authority (FCA) on the 8^th of September 2020, 14.42% of all new mortgages issued during the second quarter of that year were buy to let mortgages – all granted on the strength of the rental income to be generated.

Based on the FCA’s lending criteria, therefore, let to buy lenders are likely to require a rental income on your current home that is at least 125% of the monthly mortgage repayments on the new home you want to buy. A typical loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV) ratio for the mortgage on that new home is 75%.

What are the lending criteria for a let to buy mortgage?

A let to buy mortgage is granted based on your managing and repaying two mortgages – the buy to let mortgage on your current home and a regular, owner-occupier’s mortgage on your new home.

The monthly mortgage repayments are payable, of course, whether or not you continue to have paying tenants in the home you let.

Both the rental income anticipated from your current home and the affordability of the mortgage repayments on your new home need to be considered and taken into account by any let to buy mortgage lender.

Remember, too, that there will be various costs associated with arranging the mortgage and buying the new property – and that includes your liability not only for any stamp duty  but also the 3% stamp dutyA tax paid by the buyer when purchasing a property. surcharge payable on the purchase of a second home (even though it’s the one you intend to be living in).

How can I find a let to buy mortgage?

It will be evident that let to buy mortgages are specialist mortgages. Therefore, not all mortgage lenders will offer the product.

To identify those that do – and to help you secure a let to buy mortgage on suitably favourable terms – you might want to consult an experienced mortgage broker.

Next Steps

A ‘let to buy’ mortgage is a good way of doing this. It allows you to purchase your new property with the equity that has built up in your existing home, without having to sell it. Essentially, you are borrowing against the existing property and using the money to purchase the new one. This can be beneficial for many reasons, including avoiding having to pay stamp duty

Perhaps you are looking to purchase a new home that is bigger and better than your existing property, or move away from the hustle and bustle of the city. A Let to Buy Mortgage can allow you to do just that, while still keeping your current property. It is essentially when you take out a mortgage on a second property and let out your existing residence. 

Getting such mortgage is difficult but with the right advice its possible. If you are interested in such mortgages, please feel free to contact our team of expert mortgage brokers who can help you with application process.

FAQs

What are let to buy mortgages, and how do they work for rental property investments?

Let to buy mortgages enable you to purchase a property for renting while still residing in your current home. This type of mortgage allows you to use the equity in your current residence to support the onward purchase of a new property in the rental market.

What is the rental income criterium and the mortgage repayment for buy to let mortgages? 

Lenders often require that rental income from your buy to let property covers a minimum percentage of your monthly mortgage payment. This criterium ensures your mortgage deal remains affordable and viable.

How does a mortgage broker assist with mortgage advice and finding suitable mortgage deals?  

A mortgage broker is an expert mortgage advisor who helps you navigate the mortgage application process. They analyze your credit score, income, and credit file to find a mortgage provider offering a suitable deal based on your individual circumstances.

What is stamp duty, including stamp duty land tax and additional stamp duty?

Stamp duty is a tax payable on property purchases. Stamp duty land tax is the standard tax, and additional stamp duty applies when buying a second property or investment property.

Is a let to buy mortgage different from a standard residential mortgage?

Yes, a let to buy mortgage is specialized and involves renting out your current residence to generate income for the mortgage payment on your onward property purchase. This is distinct from a standard mortgage for residential purchase.

What are the eligibility criterium and affordability criterium for let to buy mortgages?

Lenders assess your credit rating, income, and credit report to determine your eligibility for a let to buy mortgage. They also evaluate whether your rental income and personal income meet the affordability criteria for the mortgage.

How can I maximize my property portfolio as a long-term investment with let to buy mortgages?

Let to buy mortgages offer the opportunity to hold onto your original property as a long-term investment, releasing equity for additional property purchases in the ever-changing property market.

What is the maximum loan amount I can secure with a let to buy mortgage?

The maximum loan amount is influenced by factors like the property price, your credit score, and the lending criteria of the specialist lender you choose for your let to buy mortgage.

How does the property chain affect my onward property purchase in the housing market?

The property chain refers to the sequence of property transactions involving multiple buyers and sellers. Understanding the property chain is crucial for a smooth onward property purchase, especially in a competitive housing market.

What role do estate agents and letting agents play in the process of securing a let to buy mortgage?Estate agents help you find properties for sale, while letting agents assist in managing properties for rent. Their expertise can be valuable when navigating the range of lenders offering let to buy mortgages.