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Let to Buy Mortgage - How does it work?
When you already own a property and are looking to move, Let to Buy is a way to rent out your current home rather than sell it. Mortgage Advice Centre explores the pros and cons to this approach.
What is a Let to Buy mortgage?
A Let to Buy mortgage is a way to buy a new home and let your current property out to tenants. In the end you will own two properties – and have two mortgages.
People often choose Let to Buy as a way of keeping their first property as an investment – which works well if you have a lot of equity in your existing property. Let to Buy enables you to use your equity as a deposit on the new home – but you usually need to take both mortgages with the same lender to do this.
Is Let to Buy right for me?
Let to Buy can be a good option if:
- You want to keep your first property as an investment
- It’s proving difficult to sell your home
- You have a good level of equity
- You want to avoid a downward property chain
As well as good equity, you will also need savings or other funds to cover stamp duty and mortgage fees and costs.
What’s the lending criteria for a Let to Buy Mortgage?
Because you’ll end up with two mortgages, there are two sets of lending criteria to meet. For the residential mortgage, there will be criteria around age, credit score and affordability. You will need to prove you have enough income to cover the repayments on your mortgage.
Many Buy to Let mortgages will require a deposit (the amount can vary) and a good credit history. The lender will also look at the rental income you can generate on the Buy to Let property, and require this to be a specified percentage higher than your monthly payments.
Other lending criteria will depend on the mortgage company, but there are often age limits and details about the type of property you’re buying or letting.
Can I switch my current mortgage to a Buy to Let?
Some lenders will allow you to convert your existing mortgage to a Buy to Let mortgage. It can seem simpler, but you should compare the deal you’re offered with other Buy to Let mortgages to make sure it’s competitive.
There are lots of options to consider with Let to Buy, including:
- Switching your current mortgage and taking out a second mortgage for the onward purchase
- Finding a single lender for both mortgages
- Arranging each mortgage separately
A Mortgage Broker will help you explore the different choices and recommend a good solution.
What if I only want to rent out my property for a short period?
If you only plan to rent for a short period of time, Let to Buy may not be the most suitable approach. Should you wish to sell your existing home in a short timeframe, you could consider a bridging loan.
Otherwise, it will usually be best to pursue separate mortgages for your rental and purchase properties. Ask your current lender for consent to let and, if it’s possible, what the costs might be. Otherwise, seek out a flexible Buy to Let mortgage that has no early repayment charge.
Will I have to pay additional stamp duty?
The cost of stamp duty is one of the disadvantages of Let to Buy – because you’re buying a second property, you will need to pay additional stamp duty at 3%.
Use the Stamp Duty Calculator on the Government website to calculate what this will cost for your property budget.
Are there other drawbacks to Let to Buy mortgages?
While owning two properties is a good long term investment, there are additional costs and responsibilities to allow for. You’ll have twice the repair and maintenance costs, and you will pay two mortgages, which can be costly if there’s a gap between tenants in your rental property.
Let to Buy will often limit the number of lenders, so you might find that interest rates are a little higher compared with the wider market of mortgages. You’ll also need to complete annual tax returns for your rental property.
How can Mortgage Advice Centre help?
We’re here to look into all your options to release equity, invest for the future and move to a property that suits your needs. We compare Let to Buy deals across a wide range of lenders to find the most suitable, affordable product.
We’ll explain various lenders’ offers and also help you with the mortgage application – plus advise you on getting your rental property live and occupied. For friendly, expert mortgage advice, contact our registered office today.
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