Should you let-to-buy?

Whether buy-to-let or buy-to-sell is better is commonly debated amongst would-be and experienced landlords. But unbeknown to most, these aren’t your only options…

Let-to-buy is another avenue many choose to explore and it’s more popular than ever as people look to hold onto the real estate they have whilst moving onto pastures new. We’re here to shed some light on a mortgage product that often gives home movers the best of both worlds.

What is let-to-buy?

Put simply, let-to-buy is when you rent out your current home and buy a new property to live in. It’s essentially the opposite of a buy-to-let, with your existing property remortgaged and any equity released used as a deposit for a new home. The mortgage repayments on your remortgaged home will then be covered by the rental income.

Does this mean I’ll have two mortgages?

In short, yes. If you let-to-buy, you’ll have two mortgages. The HomeOwners Alliance explains the facts and figures behind the mortgages you need for the let-to-buy process to work for you:

“With Let to Buy you’ll be able to release equity from your property by borrowing at a higher LTV. For example, if your home is worth £200,000 and your mortgage is currently £130,000 you can borrow £150,000 and use that extra £20,000 as a deposit on the new property. You’ll then take out a standard residential mortgage with the same lender.”

Why would I use a let-to-buy mortgage?

There are many instances where let-to-buy would be a more suitable option. Some home movers use let-to-buy to hurry the moving process along. Let-to-buy allows you to move into a new property quickly without waiting to sell your existing home. Difficult property market conditions also make letting to buy a good move.

The most common reason for taking out a let-to-buy mortgage is that you can use equity generated by your current property as a house deposit whilst keeping the property as an investment that you can sell later down the line.

Many new couples choose to let-to-buy as a way of purchasing a home together whilst keeping ownership of their existing property assets. Let-to-buy mortgages are also a good option for those looking to move into another property for the short term before moving back to their home at a later date.

What’s the catch?

There are several reasons why let-to-buy works for so many people. Taking out a let-to-buy mortgage, however, doesn’t come without its challenges.

Let-to-buy mortgage criteria is particularly strict. Eligibility may be based on the rental income you’ll make from letting out your current property, instead of your income. But you’ll still need to prove that the rental value equates to more than your monthly mortgage repayments (the majority of lenders ask for 145% as standard) and that you are purchasing a new property at the same time.

Stamp duty is also higher when purchasing a second property, whilst let-to-buy mortgage rates are generally not as good as standard mortgage products. The prospect of having two mortgages at the same time, owning two properties and becoming a landlord is also worrying for some.

Taking out a let-to-buy mortgage can be particularly complex. With this, it’s recommended that you use a mortgage broker and the same solicitor for both property transactions. 

Get started on your let-to-buy journey by contacting us today to find the best mortgage for your circumstances.

Image: Imran Khan’s Photography / Shutterstock.com