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Let-to-Buy Mortgages

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 11th November 2019 *

If your goal is to purchase a new property while keeping your existing home and renting it out, a let-to-buy mortgage could be the answer.

This guide explains let-to-buy mortgages, read on for a comprehensive overview or use the links to get to the information you’re looking for:

If you already know what a let-to-buy is and are interested in finding the best way to go about getting a let-to-buy mortgage which works for you, make an enquiry or call 0808 189 2301 to speak to one of the expert brokers we work with.

All the experts we work with are whole-of-market brokers with access to lenders across the entire UK. We’ll match you with a broker experienced in successfully arranging buy-to-let mortgages for other happy customers. And, because they have access to all the lenders around, you can be sure you’re getting the most competitive mortgage rates available.

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What is a let-to-buy mortgage?

A let-to-buy mortgage allows you to retain your existing home and rent it out to paying tenants, while you buy a new home for yourself and your family to live in.

So, when you let-to-buy, you buy a property to move into and live in and let your existing home out to tenants.

Due to its nature, a let-to-buy arrangement often consists of two mortgages:

  1. A buy-to-let mortgage on the property being converted into a rental
  2. A residential mortgage on the new property being moved into

It’s also common for borrowers to release equity from the property to be let, to use as a deposit for the new house.

There are many scenarios where this is beneficial. For instance, couples who already had their own properties when they got together might choose let-to-buy when moving in together, as it allows them to keep both homes, living in one and letting out the other.

Alternatively, you might have just landed a job in a new city, need to move quickly, but are having trouble selling your home. Taking out a let-to-buy mortgage would allow you to take up residence in the new location while generating rental income from your original home.

What’s the difference between let-to-buy and buy-to-let mortgages?

Both mortgage types are geared towards those who are looking to rent out a property, but they function differently.

Let-to-buy mortgages are for borrowers who already own a home they live in but want to move and rent their existing home out to tenants.

Buy-to-let mortgages are for people who want to buy a property with the sole intention of renting it out for income from the outset.

Let-to-buy mortgage arrangements often involve taking out two mortgages with the same provider simultaneously. Although it’s also possible to take on two different mortgages with two different lenders, if that means you’re getting the best deal at the best price.

Many borrowers who want to arrange let-to-buy mortgages will use equity in their original property to put towards the deposit for the new house they intend to buy and live in.

A let-to-buy remortgage - i.e. seeking a new deal for the property you have converted into rental accommodation, after you’ve moved into your new home - would be treated as a standard buy-to-let remortgage, and the purchase of the new home would be treated as any other mortgage application by the majority of UK lenders.

If you have questions about let-to-buy mortgages, want to arrange a let-to-buy mortgage or simply want to know if it’s an arrangement an expert would recommend for you, get in touch and the advisors we work with will be happy to help.

What is the lending criteria?

Many mortgage lenders have strict criteria for let-to-buy mortgages and will only lend to borrowers who meet their requirements.

Let-to-buy mortgage lenders will take the following factors into consideration when assessing your application:

  • Your age
  • The size of the deposit or amount of equity
  • The monthly rental income
  • Affordability
  • Credit history
  • Other factors

Age limits

As a general rule, most let-to-buy lenders will turn away borrowers who are younger than 25, or older than 75.

However, there are specialist mortgage providers who may offer let-to-buy deals to customers who fall outside of these parameters. The expert advisors we work with can tell you who they are and help you understand if you meet the other lending requirements. Make an enquiry for a free, no obligation chat.

How much deposit do I need?

The majority of let-to-buy mortgage lenders will insist on a deposit or certain amount of equity, usually around 25%.

Many providers will require the same amount of deposit for let-to-buy as they would ask for buy-to-let mortgages. Which would fall between 20-40% deposit, although there are a few lenders who will consider lower deposits than this.

For the new property you’re buying, some lenders also require more deposit and will cap the new purchase loan to value rate at 80%, which means you'll need a minimum of 20% deposit. Although, in the right circumstances, some lenders might consider lending up to 90%, or more.

To find out what deposit you might need for a let-to-buy mortgage make an enquiry and we’ll match you with one of the expert mortgage brokers we work with.

Monthly rental income

Mortgage lenders will only hand out this mortgage product if the investment is viable.

Your mortgage provider will set a monthly rental income requirement for let-to-buy houses. It will be necessary to get a higher rent than you spend on your mortgage repayments. So you’ll need to work out how much rent you’ll be able to charge on the property to make sure you’ll be able to achieve this.

Most lenders will look for rental income at 125% of whatever the monthly mortgage payment will be.

To find out how much you could expect to get in rent, get quotes from at least three local letting agents to give you the best idea of what you should get in rent every month. This is something you will need to prove as part of the affordability assessment so it’s worth making sure you’re confident in the quotes you’re given.

Lenders will vary on how much rental income they would need to see in relation to the amount you are borrowing. To make sure you’re getting the best term, talk to one of the expert brokers we work with. They have working relationships with all the mortgage lenders in this space and will know which lender will offer you the most competitive deal.

Call 0808 189 2301 or make an enquiry for a free, no obligation chat.

Affordability

Your let-to-buy application process will include an affordability check to ensure the investment is viable and you’re capable of servicing two mortgages.

Providing proof of the anticipated rental income is a key part of this, so your lender will request proof in writing from an agency registered with the Association of Residential Letting Agents (ARLA).

Most mortgage providers also have a minimum income requirement - usually around £25,000 - to lend under these circumstances, though some may be flexible if your salary is adequate to service the outstanding amount on the existing mortgage.

It’s also standard practise for let-to-buy mortgage lenders in the UK to carry out a full credit check on applicants, and a clean history will help you meet the eligibility criteria. However, should you have a poor credit history, some specialist lenders may be able to help.

For the mortgage on your new house, maximum loan amounts will vary from lender to lender. Usually lenders will offer 4x income, but there are a few who will offer 5x income and a handful stretch to 6x in very particular circumstances.

The income figures used for this are the same as with any other regular mortgage, with lenders using a varied amount of basic salary and additional incomes like bonus and commission.

They may also have different requirements for self-employed borrowers in terms of trading style, number of years accounts, turnover, profit and dividends (if Ltd).

If you want the right advice to ensure you’re getting the best deal, or to establish the top end of your affordability on both properties, make an enquiry and we’ll refer you on to one of the experts brokers we work with.

Can I get a let-to-buy mortgage with bad credit?

As a let-to-buy mortgage includes both residential and buy-to-let elements, the borrowing criteria can be stricter, especially where the mainstream lenders are concerned.

If you have any of the following against your name you might not qualify:

  • Late payments
  • CCJs
  • Defaults
  • Debt management plans
  • IVAs
  • Bankruptcy
  • Repossessions

However, the good news is that there are brokers out there who are more sympathetic to borrowers with any of the above, and they have a strong track record when it comes to negotiating let-to-buy loans in niche situations. Although success often depends on how long the adverse credit has been on the customer’s file.

Read our page about buy-to-let mortgages for customers with credit issues or make an enquiry to learn more. We’ll introduce you to one of the brokers we work with. All the advisors we deal with are whole-of-market experts with access to all the mortgage lenders in the UK, and will search to get you the best deal, whatever your situation.

Other factors

Most lenders would be unwilling to offer a let-to-buy mortgage with no onward purchase in place. The majority also require you to have been living in your residential property for a minimum amount of time, usually between six months to a year.

That said, there are specialists who offer let-to-buy mortgages without an onward property purchase, or who will consider remortgaging within six months of ownership.

If you’re unsure whether you meet the lending criteria for a let-to-buy mortgage or have been turned down for any reason, get in touch! The whole-of-market advisors we work with will reassess your application, compare let-to-buy mortgages, and pair you with a lender tailored to your circumstances.

Call 0808 189 2301 or make an enquiry for a free, no obligation chat.

How much can I borrow?

The typical loan to value rate (LTV) offered by UK mortgage providers on let-to-buy mortgages is around 75%. Some lenders offer slightly lower at 70%, and others will go higher. 

Specialist providers can stretch to 80%, and a minority to 90% and up, under the right circumstances.

Some lenders will place a cap on the amount they are willing to loan, typically between £500,000 and £600,000, but specialist providers will go much higher, as long as you tick the relevant boxes during the eligibility and affordability checks.

To find out exactly how much you could borrow on a let-to-buy mortgage, make an enquiry and we’ll connect you with the broker most qualified to arrange the best let-to-buy mortgage deals for someone in your circumstances.

Getting the best let-to-buy mortgage rates in the UK

There are a number of variables which will impact on the let-to-buy mortgage rate you’re eligible for, including:

  1. The amount of equity/deposit you have: Put simply, borrowers with a sizable deposit or a large amount of equity are more likely to be put forward for a favourable loan to value (LTV) ratio by a let-to-buy mortgage broker.
  2. Your age: The borrower’s age impacts on the rates they qualify for as the younger you are, the longer you can borrow for. Many lenders refuse to offer mortgages to applicants over 75 or under 25, but there are specialists who impose no such limits.
  3. Your income type: Some providers are reluctant to take forms of income such as regular overtime, commission, bursaries and state benefits into account. Some are also wary of self-employed applicants. Others are more flexible, but the more widely accepted your income, the better the rates you will be eligible for.
  4. Your credit history: We’ve already talked about how adverse credit can impact on a let-to-buy remortgage application, but the important thing to keep in mind is that credit issues are less problematic at some lenders than others. Generally speaking, the older the credit issues, the better the rates you’re likely to qualify for. 

If you have any adverse credit your file, it’s important to find out how let-to-buy mortgage rates compare from lender to lender. The brokers we work with have access to the whole of the market and can help you find a provider offering the best deals for your situation.

Stamp duty charges

When considering whether a let-to-buy mortgage is right for you, it’s important to factor in the extra costs, like the additional stamp duty charges.

In accordance with stamp duty changes rolled out by the government in 2016, homeowners are required to pay an additional 3% on second properties. This means that a £200,000 house you’ve obtained a let-to-buy mortgage for comes with an extra bill of £6,000.

However, if you sell your original property within three years of buying a new one, the government will refund the additional 3% charge in full.

Alternatives to let-to-buy

If your aim is to rent out a property you own and live elsewhere you should weigh up the potential alternatives to a let-to-buy mortgage, as one of them may be a better fit for your circumstances.

Other options include:

  • A buy-to-let (BTL) mortgage: If having two mortgages on your plate sounds less than ideal, remortgaging your property as a buy-to-let and moving into rental accommodation may be an option, providing you meet the lender’s BTL criteria. Find more information on our buy-to-let mortgages page.
  • Consent to let: Rather than switching the mortgage on the property you wish to let out, your lender might give you permission to let your property out while you purchase elsewhere or move into a rental. This may be viable for those who only plan on renting their home out for only a brief period of time.
  • A second charge mortgage: A second charge mortgage is a loan secured against your property and a method commonly used by homeowners who wish to raise funds without remortgaging. It’s basically a mortgage on top of your existing mortgage, and the equity it unlocks could be invested in a second property. If there’s enough equity, you may be able to buy the new property outright in cash or put up a larger deposit. Whether this is a more favourable option than a let-to-buy arrangement will depend on the terms you’re eligible for in each category. Find out more information about second charge mortgages.  

Can I get an interest-only let-to-buy mortgage?

Yes! The buy-to-let element of a let-to-buy mortgage will typically be offered as interest-only. Some lenders may be willing to grant you a residential deal on an interest-only basis if you can prove you have a repayment vehicle in place.

Acceptable repayment plans include:

  • Pension funds
  • Endowment plans
  • SIPPs
  • Bonds and ISAs
  • The sale of another property
  • Investment bonds
  • Cash savings
  • Unit trusts

Not every lender will recognise all of the above and the rates they offer you may vary depending on what kind of repayment vehicle you have.

If you’re unsure what kind of let-to-buy mortgage you may be eligible for, get in touch and we will talk you through your options and connect you with the broker who is best suited to dealing with somebody in your circumstances.

Speak to an expert

Of course, the above options may not be the only let-to-buy alternatives to somebody in your situation. If you get in touch, the whole-of-market mortgage experts we work with will carry out a let-to-buy comparison and suggest the best course of action.

All the brokers we work with have access to mortgage lenders across the entire UK. They will be happy to answer your questions and help you understand all the options available to you.

The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.

Call 0808 189 2301 or make an enquiry to talk to someone who can help you get the mortgage you want at the best available rate.

Updated: 11th November 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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