Let to Buy Mortgages
Let to Buy Mortgages have increased in popularity in recent years, as the troubled UK housing market has meant difficulties for many people trying to sell their homes. With a Let to Buy mortgage, you retain ownership of your current property and let it out, which then allows you to take out a residential mortgage to purchase a new home to live in.
What is a let to buy mortgage?
A Let to Buy mortgage is a scheme that allows you to retain ownership of your current home – if you want to move out for any reason – for the purpose of letting out to tenants while you can find and purchase a new property to live in. For example, you might need to move away for work, or to be closer to relatives, but at the same time not want to actually sell your home, perhaps for sentimental reasons or alternatively you might decide you simply want to keep your existing home as an investment.
This type of mortgage is also ideal if you are finding it difficult to sell your current home, which will in turn hold up the property ‘chain’ and affect your ability to purchase the new property you intend to live in. Once you secure a Let to Buy mortgage on your existing home, you are then free to make an onward purchase for a property that will become your main residence. Either way, the end result is you can have one property to let out while you are paying the mortgage on a new residential home elsewhere.
The process can seem a little back-to-front and somewhat difficult to get your head around, and it is important to make sure your figures and calculations tally up to make the overall transaction work. The affordability of the new mortgage may depend on the amount of equity you already have in your current home and the projected rental revenue from letting it out, as well as your personal income. Obviously, the cash flow and long-term financial outlook need to be in your favour and resulting in a viable proposition. It’s a fine balance to strike, and we’ll look at this more closely in the next section.
MORTGAGES FOR LET TO BUY properties
There are a number of products and lenders in the market suitable for Let to Buy arrangements. A lot of the time we will be able to find a lender that offers the most favourable terms for both the new Buy-to-Let mortgage on your existing property and the residential mortgage for your new home, and in fact, a few mainstream lenders now have specialist packages for a Let to Buy scenario. However, just as often we will have to source separate lenders and mortgage products for each transaction and then exercise careful management to make sure the processes run smoothly and the timing for completion for both properties coincides perfectly.
You could be an experienced landlord or a first-time Buy-to-Let investor – the assessment criteria used by lenders to judge your creditworthiness and affordability for a Let to Buy mortgage scheme will be the same as for a residential or a Buy-to-Let mortgage. But the calculations on both become intertwined when it comes to your income and outgoings.
Terms and deals offered by lenders frequently shift according to changes and competition within the market, so it’s worth taking advantage of a free consultation with an expert mortgage advisor to ensure you have a choice from all the products available when looking for the most suitable deal to meet your needs.
Due to the more complex, finely balanced process, we are a lot more involved than for a typical mortgage arrangement, and our input is vital. However, our advisers are well-versed in all matters around Let to Buy mortgages, and will be happy to guide you through each step to make sure your plans for your properties have the greatest chance of success. If you want to find out more about Let to Buy mortgages, and how they could work in your individual circumstances, please feel free to contact our team.
HOW IS LET TO BUY DIFFERENT FROM BUY-TO-LET?
On the surface, you might think that it’s pretty straightforward. In either Let to Buy or Buy-to-Let scenarios, the end result for the borrower will be the same. They will have two properties under their ownership; one that they live in with a residential mortgage, and a second they let out and use the rental revenue to repay a Buy-to-Let mortgage and make a profit after other associated costs. However, the process to how they got there in either case contains some fundamental differences that are worth examining.
With a normal Buy-to-Let mortgage, the borrower will already have a place where they live – either a wholly-owned, mortgaged or rented property, unless they live with parents or friends – and are looking to make an investment in a new property that they will use to rent out to tenants. They simply need to provide a large enough deposit to secure the Buy-to-Let mortgage, usually 25% of the property’s value, and the lender needs to be satisfied that the anticipated rental income will be enough to cover the mortgage and peripheral costs around managing the tenancy and maintaining the property.
With a Let to Buy arrangement, the borrowers are looking to convert their current residential home loan into a Buy-to-Let mortgage, and at the same time obtain a new residential mortgage on their next home. This requires double the amount of assessments on the part of the lender, and essentially the arrangement of two separate mortgages that need to work together. They must ensure that 25% of their current home’s value remains in the property, while any extra equity can be used towards the deposit on their next home, which would be the usual 5%–10%.
To sum up – in the first instance, the borrower is buying a new property with the intent to let it out; in the second, the borrower is changing the mortgage on their current property so they can let it out while also obtaining a new mortgage on another place that will become their home.
How do let to buy mortgages work?
A Let to Buy mortgage can be a type of mortgage, but in reality it is a type of property buying process. The process involves applying and completing on 2 mortgages simultaneously. In brief these are the usual steps we will take to help you through the process.
- Find a lender that is willing to lend on your residential home on the basis that the property will be let out after you complete on the mortgage. This will usually be on a Buy to Let mortgage.
- Use the Buy to Let mortgage on your existing property to take out as much equity as possible, or as much as needed. This money will be used as a deposit for your onward property purchase. This equity/ deposit will usually be released at the same time as you complete on your onward property purchase.
- Find another lender that is willing to lend on your onward residential purchase. This lender must be willing to lend on the basis that your current home will be let out on completion of both mortgage transactions and any rental income you receive from letting out your current home will be used to pay the Buy toLet mortgage payment.
- On completion of both transactions, we will ensure via the help of your Legal representatives that the money raised on you current home is used as a deposit for your new property purchase. The mortgage amount secured on the onward property along with the deposit monies should give you enough to complete on the onward property purchase and thus you can have a new home while holding onto your existing home as a Buy to Let property.
The process of going through a Let to Buy mortgage can get quite complicated and it is important that everything is well thought out and executed simultaneously and in a timely manner. Our advisers can help you through the process to make things easier. So if you are thinking about keeping your existing home while at the same time purchasing a new home to live in, then contact us today to see if a Let to Buy Mortgage is the way forward for you.
What are the criteria for Let to Buy mortgages?
With Let to Buy mortgages you must meet the criteria on a two-fold basis. Firstly you must meet the criteria for the ‘Let’ part of your mortgage requirements. This will be a Buy to Let mortgage that will be secured on your current home and is as follows.
- You must be able to demonstrate at least 25% equity left in your property after you release any monies for a deposit for your onward purchase. This will be taken from a surveyors valuation of your property.
- More often than not you will be required to prove a minimum personal income. This could be £15,000-£25,000.
- A surveyor will have to confirm that the rental income you hope to receive on your current home is in line with the local rental market.
- The rental income will be further assessed by the lender to ascertain if it is enough to cover the new mortgage payment and leave a ‘buffer’ amount for other regular costs. The buffer will usually need to be at least 25% more than the monthly mortgage payment. Some lenders may require you to have more left as a buffer.
After the ‘Let’ part of the criteria is met, the second part or the ‘To Buy’ part of the criteria must be met and is as follows.
- You must meet the affordability guidelines set out by the lender. This will be based on your personal income and an assessment to confirm that your ‘Let’ part of your mortgage will not leave you over committed on your monthly outgoings.
- You will need to prove that you have the required deposit amount to purchase the new property. This can be taken from proof of your savings or from details of your ‘Let’ part of your mortgage where you may be raising the deposit from.
- Apart from the above, the rest of criteria are identical to a traditional Buy to Let or Residential mortgage.
To see if you meet the criteria above, speak to one of our experienced advisers today.
What deposit do I need for a let to buy mortgage?
The deposit works 2 fold as a Let to Buy mortgage is effectively 2 transactions. For the ‘Let’ part of your transaction you will usually require 25% left in your property after any monies have been taken out for a deposit for your onward purchase. Some lenders may require less.
For the ‘To Buy’ part of the transaction, the deposit can be as little as 5%. However, most lenders will require 10% deposit or more. Lenders requirements and lending criteria are ever evolving. At Just Mortgage Brokers our Mortgage Advisers pride themselves on staying up to date with all the latest changes. Speak to one of them today to see how they can help you.
How much can I borrow with a let to buy mortgage?
Depending on how much rental income you can achieve will very much determine on how much you can borrow on the ‘Let’ part of your Let to Buy mortgage. As a rule of thumb, the maximum you may be able to borrow is 75% of the value of your property. There may be the odd lender that is willing to squeeze that so you can borrow 80% of the value of the property.
On the ‘To Buy’ part for your onward purchase, you may be able to borrow as much 95% of the property value. It will however ultimately depend on your provable personal income and how that transpires into what a lender determines is an affordable amount to lend to you.
Advantages of Let to Buy
The main advantage is that you can keep your existing property as an investment while being able to buy an onward property to live in. It is also very useful if you are struggling to sell your current home and this in effect is stopping you from buying a new home to live in.
When trying to buy a new property, letting out your current property effectively helps to ‘break the chain’ which can make you more desirable to a seller of a property as the property chain reduces to a point that you have similar advantages to a First Time Buyer or a Cash Buyer.
Disadvantages of Let to Buy
While holding onto your existing may seem like a brilliant investment idea, it can bring its disadvantages. Firstly you will become a landlord and with that comes responsibilities. The property must be kept to a minimum standard for your tenants and if you have any void periods without tenants then you will have find the money to pay the mortgage payment. Any rental income you receive will also be taxable and therefore you will need to start completing annual tax returns for HMRC. By keeping your existing property you will incur additional Stamp Duty charges on your onward purchase. Depending on your new property purchase price, this could be several thousands of pounds in extra tax. If you want to find out more and have a more in depth conversation about the pros and cons specific to your circumstance then contact us at Just Mortgage Brokers where we will be happy to help.
Let to Buy mortgage rates
Let to Buy mortgage rates are usually very much the same as a standard Buy to Let mortgage rate or a standard residential mortgage rate. There are some lenders that will not entertain the idea of a Let to Buy mortgage. However there are plenty of lenders that will. Given this availability of lenders it is important to try and get the best advice in order to secure the most competitive mortgage rates. It is not so much finding the rates that is difficult but being able to bind together all the criteria and borrowing requirements for your personal circumstances. At Just Mortgage Brokers our advisers have the experience to make sure you get the best rate for your circumstance and also ensure that the lenders that they choose will ultimately lend the money without any complications.
Let to buy mortgage lenders
Let to Buy mortgage lenders have been around for quite some time now. As time goes on, more and more lenders are willing to enter this niche part of the market. While the availability of lenders is not a huge issue, trying to make sure all the figures, calculations and specific criteria match your individual circumstance can be challenging. Our advisers have access to lenders that are household names as well as those niches specialists that only work via mortgage brokers.
Can I get a let to buy mortgage with bad credit?
Getting a Let to Buy mortgage with bad credit can be challenging, but it is not impossible. It is not much different than trying to qualify for a standard mortgage. Over the years lenders have become more sophisticated when it comes to lending to those with bad credit. This has helped to give access to those that would usually be under the impression that they quite simply would not qualify. If you believe you have bad credit and would like to find out if you qualify for a Let to Buy mortgage then get in touch with one of our advisers that specialise in bad credit mortgages. In the first instance they will need a copy of your credit report. Once they have this they can usually give you an indication whether they can help or not. With bad credit, it is important to understand that every case is individual and it will very much depend on the data that shows up on your credit file.
Let to buy mortgage advice
Getting a Let to Buy mortgage can be quite time consuming and complicated. In order to make the whole process work for you it is vital that a Buy to Let mortgage and a standard residential mortgage can both be applied for simultaneously as well as complete simultaneously. Due to the nature of every enquiry being slightly different it is important to try and match the 2 mortgages up so they complement the whole process and result in successfully retaining your current home as an investment as well as being able to purchase your new home. To make sure everything runs smoothly it is important to get the right advice. Getting the wrong advice could end up costing you more in the long run or worst hamper your chances of successfully completing the task in hand. That in itself can also be costly.
At Just Mortgage Brokers our expert advisers work on Let to Buy mortgages on a regular basis. Why not give us a call to see how they can help?