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What is let-to-buy?
Let-to-buy is when you let out your existing home and buy a new one. If this requires financing, you can take out a let-to-buy mortgage whereby you release equity from your existing home by remortgaging it. You will then use the rental income on the existing property to cover the remortgage payments and use the equity released from it as a deposit on your new home, securing a further residential mortgage for its purchase.
Why would I use a let-to-buy arrangement?
There are many reasons why a let-to-buy arrangement might be useful for you.
- You may be a couple with two houses and want to move into one of them together and rather than sell the other house, you want to rent it out.
- If you are buying a new house and are unable to sell your old one – or not quite there with the sale – you might use this type of arrangement. However, do remember to speak to your existing mortgage lender first as it may be able to offer you a different arrangement, such as allowing you to let out your residential property for a short period of time, known as consent-to-let, and/or porting (moving) your existing residential mortgage over to your new home.
- You may wish to hold on to your existing property as a long-term investment whilst still moving into a new home.
With this sort or arrangement, you will be responsible for two mortgages. You should speak to a financial advisor to ensure that taking out additional lending or financial responsibilities is the right course for you. Your financial advisor will be able to advise you in respect of mortgage liability and tax liability.
What is a let-to-buy mortgage?
If you change the use of your property from one you live in to one you rent out, you will need a special type of mortgage – a rental property mortgage. A let-to-buy mortgage is a rental mortgage. You cannot live in a property on which you have a rental mortgage, and you cannot rent out a property on which you have a residential mortgage without the lender’s permission.
Where can I get a let-to-buy mortgage?
Not all lenders offer let-to-buy mortgages and many of those who do, only offer them through agents or brokers, so you may have to find an agent or broker who deals with let-to-buy lenders.
Are let-to-buy mortgages more expensive than residential mortgages?
Yes, let-to-buy mortgage rates are usually higher than standard residential mortgage rates to reflect the increased risk to the lender, such as not knowing who will live in the property, the fact that the property may be vacant for a period of time with no tenant and not being able to carry out checks directly on the tenant as they would with a borrower. There are not as many deals available on let-to-buy mortgages as there are on residential mortgages.
Are there any specific lending criteria on let-to-buy mortgages?
Yes, but they will be different depending on who your let-to-buy mortgage lender is. Generally, in addition to the standard criteria that apply to borrowers, some of the following will apply:
- The maximum loan to value (LTV) is 75%, so you are likely to need a large amount of equity in your existing property.
- The minimum age at which you can apply is 25 and the maximum is 70 – with many lenders having a lower maximum age limit.
- The lender will want to see evidence of the property you are going to buy with the let to buy mortgage.
- The proposed rental income will need to cover the let-to-buy mortgage payment.
- Your lender may wish to see a rental income proposal or valuation from a letting agent before agreeing the mortgage.
Do I have to pay stamp duty land tax?
Yes, you will have to pay stamp duty on the second property at the higher rate. That is 3% above the standard rate. You should be able to reclaim this directly via HMRC if you sell your older property within 36 months.
What is the difference between let-to-buy and buy-to-let?
With a buy-to-let you are buying a property with the specific aim of renting it out and taking a buy-to-let loan or mortgage to do that if necessary, rather than remortgaging your existing home to rent out and buying a new one for yourself.
Will I become a landlord if I enter into a let-to-buy arrangement?
Yes, so do make sure you are aware of your responsibilities to your tenants and your liability for tax on the rental income.
How can Graysons help with my let-to-buy?
Contact our property experts to discuss how we can help with the remortgage of your existing property and the purchase of your new one. You can also get a competitive quotation using our conveyancing calculator.
Don’t forget that Graysons is accredited with the Law Society’s Conveyancing Quality standard, so you can rest assured that our expertise and quality of service is second to none.