Let To Buy Mortgages
A Let to Buy mortgage will allow you to buy a new home and let your current property out to tenants. At the end of the process, you will own two properties – and have two mortgages. One mortgage is a standard residential mortgage, taken out on the new home, and you will also need a Buy to Let mortgage product on the house you will be renting out.
Let to Buy is a good way to release the equity from your existing property and use it as a deposit on the new house. It also means you get to retain your first property as an investment instead of selling it. To use your equity as a deposit you usually need to take both mortgages with the same lender.
Let to Buy can be a good option:
When you want to retain your first property as an investment
If you are having trouble selling your home
Where you have a good level of equity
To avoid having a downward property chain
You will also need a certain level of savings to cover stamp duty and the fees and costs of the mortgage.
What’s the lending criteria of a Let to Buy Mortgage?
You will need to meet the lending criteria of both the residential mortgage and the Buy to Let product.
For the residential mortgage, you will need to meet affordability criteria – with sufficient income to afford the repayments on your mortgage. Lenders will also check your outgoings and look at your credit report.
For the Buy to Let mortgage you will need a deposit of at least 25%, and the rental income you generate will need to meet a minimum level. This is often 125% of your monthly interest payments.
You will also need to meet certain other criteria depending on the lender. These usually include age limits and restrictions around the type of property.
What if I only want to rent out my property for a short period?
Let to Buy is not necessarily the most suitable option if you only plan to rent for a short time. You can put a request for ‘consent to let’ to your current lender. If this is against their policy, it will usually be better to take out a flexible Buy to Let mortgage – ideally one with no early repayment charge. If you’re planning to sell your existing home within a short timeframe you could also consider a Bridging Loan.
What about stamp duty?
The cost of stamp duty is one of the drawbacks of Let to Buy. Because you are buying a second property you will be liable for additional stamp duty at 3%.
Are there other drawbacks to Let to Buy mortgages?
Having two properties is a good investment, but there are additional costs and responsibilities to consider. You’re liable for twice the repair and maintenance costs, plus you are paying two mortgages, which can be stressful and expensive if you have a gap between tenants.
There will generally be a smaller choice of lenders available to you for Let to Buy, so you might not get the most competitive mortgage rates. And, you will have to complete annual tax returns for your rental property.