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Author: Carl Shave-Director
Updated on January 30th, 2024

What is a Let to Buy Mortgage?

They allow people to rent out their existing home and take out a residential mortgage to buy a new home. It’s basically an arrangement that lets you rent out your current property, so you are free to buy your ideal next home.

Get in touch for a free initial, no-obligation discussion about your mortgage situation.

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This is the perfect solution if you are having trouble selling your property, in turn affecting your ability to buy another property to live in. They also suit people who decide they want to retain ownership as an investment.

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How do Let to Buy Mortgages work?

A Let to Buy mortgage is a term that has been adopted to make the concept easier to understand. In practice, it involves the process of buying and completing on two mortgages at the same time. Here is how the process works out, step-by-step:

  1. We’ll identify a lender that is willing to offer acceptable terms on your existing property.
  2. This Buy-to-Let mortgage will enable you to access some of the equity in your current home. You can then use this as a deposit on your new property purchase. The timing of the release of this equity will usually coincide with the completion of the purchase.
  3. We’ll then source a lender for the residential mortgage on your onward property purchase. They’ll need to be willing to lend on the basis that your current residence will be let out upon completion of both mortgages. You will then use the rental income from your current home to pay the Buy-to-Let mortgage.
  4. When both transactions are complete, we will coordinate the cash transfers with your solicitor. You should then be able to complete the purchase of your new home. You will retain ownership of your original house while being able to move into your new home.

Read Our Buy to Let Guide

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Fill out our quick and easy Buy to Let mortgage calculator below. We only require a few details to see how much you may be able to borrow.

NO CREDIT CHECKS!

What are the criteria for Let to Buy mortgages?

Let to Buy mortgages require you to meet two sets of criteria. Those for both the Buy-to-Let agreement on your current property, as well as those for the residential mortgage on your new home.

With the Buy-to-Let mortgage, these will be:

  • A Buy-to-Let mortgage typically requires a deposit of 25%. You’ll need to ensure that there is still equity in your property after you have taken out what you will need. A surveyor’s evaluation will determine the exact amount.
  • Most Buy-to-Let mortgage lenders need to see proof of a minimum personal income. This is usually anything between £15k-25k.
  • An independent surveyor will need to confirm that the level of rent you expect to receive is in line with the current local rates.
  • The lender will also assess the anticipated rental income. This is to ensure that it will be enough to meet the mortgage payments and allow for extra costs. They usually expect rental income to be 125% of the mortgage repayment amounts. However, they may stipulate as high as 145% in some cases.

Once the Buy-to-Let criteria have been met, you then have the residential mortgage criteria to contend with:

  • The lender will assess your application based on their own affordability guidelines. This will include considering your income and that the letting mortgage will not place too much strain on your monthly outgoings.
  • You must provide a large enough deposit to be able to obtain the mortgage and purchase your new home. You will usually be able to show this from either your savings or details of your Buy-to-Let agreement.
  • All other criteria will be as per a conventional residential or Buy-to-Let mortgage. Lenders will conduct the usual credit record checks and surveys.

What are the advantages and disadvantages of Let to Buy?

Advantages of Let to Buy

The main advantage is being able to retain ownership of your current home as an investment property, while also buying a second property to live in.

This arrangement is also useful for people who have had trouble selling their existing home. Releasing equity on the current property can generate equity to use as a deposit on your next purchase.

Without the need for a buyer for your existing property, you become a more attractive prospect in the eyes of sellers, much like a cash buyer or a first-time buyer.

Disadvantages of Let to Buy

With Let to Buy mortgages, you will need to bear in mind that being a landlord comes with many responsibilities and costs.

Primarily, the property must be maintained to a legally acceptable standard for it to be let out to tenants. You’ll also need to pay for maintenance, decoration, repairs, and improvements.

If you let the property through an agent, you will also have to pay them a fee to do so. This could be around 10% of the rental income plus admin fees each time the tenancy changes.

There is also the risk of the property standing empty for periods between tenancies. In which case, you will still need to cover the mortgage payments on the house.

All rental income you receive will be taxable and must be declared to HMRC though annual tax returns. The additional cash may also push you into a higher tax bracket. Some landlords prefer to set up their lettings business as a limited company for tax efficiency. However, a chartered accountant will need to carry out further work and prepare the accounts.

Finally, by keeping your existing property, you will be liable for Stamp Duty on the purchase of your new home. It can be very helpful to have an in-depth discussion about all the factors around a Let to Buy mortgage. Please don’t hesitate to get in touch with our team at The Mortgage Centres for a free consultation.

Let to Buy mortgage interest rates

Let to Buy mortgage rates are more complex to consider. However, they don’t work out to be any different than those for a Buy-to-Let or residential mortgage. It will all depend on which lenders you speak to. Some will not want to get involved with these arrangements, but there are plenty of others who will.

The challenge is not always finding the best Let to Buy mortgage rates but identifying the most amenable lenders. You must make sure the deals for both properties will work favourably for you in the long run. Otherwise, you may end up paying lots more even if you get a competitive rate.

Our specialist team at The Mortgage Centres cover every area of the mortgage market. We will be able to offer strategic guidance as to what your next steps should be.

What deposit do I need for a Let to Buy mortgage?

As the Let to Buy mortgage is two transactions combined, there are two aspects to Let to Buy mortgage deposits.

For the property you are letting, you will typically need a 25% deposit. Remember, you can use the remaining equity in your house after taking out the cash you need for your next purchase. There may be some lenders who will require less than this, but you should allow for it.

For the property you are buying, the level of deposit will be as for a typical residential agreement. Usually 10%, but some lenders will accept 5%.

How much can I borrow with a Let To Buy mortgage?

Again, this is more complex due to the double-mortgage nature of this agreement. With the letting property, the amount you’ll be able to borrow will depend on the anticipated rental income. The market value of the property will also factor into this.

As a general rule, a lender will be willing to let you borrow up to 75% of the Buy-to-Let property’s value. Although, some may squeeze this to 80% or 85% in certain circumstances.

With the property you are buying, it’s possible to borrow up to 95% of the property’s value, although 90% is more common.

The exact figure will depend on your personal income level. As ever, the higher the level of deposit, the more affordable your monthly repayments will be.

Who are the best Let to Buy mortgage lenders?

With more lenders continuing to enter this area, availability is not an issue. The challenge comes from ensuring that all the criteria, calculations, and terms come together to suit your circumstances.

Some of the more popular lenders used for Let to Buy are:

With access to the whole market, we can source options from specialist niche lenders as well as high street names.

 

 

Let to Buy mortgage brokers

Applying for a Let to Buy property mortgage can be complicated and time-consuming. For the whole process to come together properly, it is vital that the two sides of the arrangement can be applied for and completed simultaneously.

With each enquiry being slightly different, the challenge is in making sure the outcome is a success for all parties. It’s vital to get the right Let to Buy mortgage advice in order to make sure everything runs smoothly. Without it, you could end up losing a lot in terms of money, time, and a place to live.

If you’re concerned about any aspect, our team offer free initial consultations and no-obligation quotes. This means you can see the options open to you and make informed decisions about your future. Get in touch with us today.

Let to Buy mortgage FAQs

  • Can I get a Let to Buy mortgage with bad credit?

It can be a challenge but as we always say, it is by no means impossible.

In more recent years many mortgage lenders have become increasingly flexible in their approach. Therefore, they will take a more sophisticated view of an applicant’s financial status. Those who in the past would have felt they would not qualify have been able to access the lending they need.

It’s also worth remembering that the type of bad credit event and the length of time since it happened will have a bearing. A few missed payments on a card three years ago will have far less weight than a County Court Judgement in the last six months.

If you’re concerned about your credit history affecting your application, please get in touch. We will need to see a copy of your credit report to know how much we will be able to help. It’s important to note that every case is individual, so our advice will depend on your credit file.

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