What is a Let to Buy Mortgage?

A Let to Buy mortgage is used to retain your existing property, whilst buying a new home to live in. You will have two mortgages, this can be either the same lender or separate ones. This type of mortgage allows you to let your existing property to tenants, so that you can take out an additional loan to buy a new residential home.

It’s important to note that in order to let out your own home legally, you will need to have a Let to Buy mortgage in place.

Is Let to Buy right for me?

A Let to Buy mortgage will be suitable in a variety of different circumstances, however, there are fairly strict criteria that you must meet in order to obtain one. If you meet the criteria and, for whatever reason, you want to purchase a new home without selling your current home, it could be the right option for you.

Some circumstances where a Let to Buy mortgage would be beneficial are;

• Having to relocate promptly for either work or personal reasons, before you have a chance to sell your current home
• If you have a home that you would like to remain in the family for sentimental reasons, but you don’t want to live in
• If you’re struggling to sell your home, but have already found the new home of your dreams, and don’t want to miss out
• If you want to have the potential of capital growth on two properties rather than one

What’s the lending criteria of a Let to Buy Mortgage?

Whilst there is a degree of difference in the requirements of different Mortgage Lenders, typical lending criteria are:

• Most lenders require an onward purchase mortgage to be in place
• Most lenders require you have owned your current property and lived in it for a minimum of six months
• Most lenders will want proof that the rental yield from your existing property will cover the repayments on your mortgage for your new home. Proof should be from an ARLA (Association of Residential Letting Agents) letting agent
• There is typically a minimum income requirement of £25,000
• Most lenders will require at least 25% equity to remain in your property
• What if I only want to rent out my property for a short period?

In some circumstances, it’s possible to arrange a ‘Consent to Let’ authorisation from your Mortgage Lender, if you only intend to let your property for a short period of time.

What about buy-to-let stamp duty?

When you own more than one property,  additional Stamp duty of 3% is due on each property over and above your own residential home. Having a Let to Buy mortgage will put you in this position, so it’s important to consider the extra stamp duty expense in your planning.

Are there any drawbacks to Let to Buy mortgages?

Let to Buy mortgages often carry a higher interest rate than Standard Residential Mortgages, due to the increased risk involved in this type of borrowing.

There is the long term responsibility of making mortgage payments on two properties, as this will be the case whether or not you have rental income.

If you’re a first time landlord, you may also want to consider the additional costs and tax implications of owning rental property, before making a final decision.

Are there any alternatives?

A Second Charge Mortgage

If you have substantial equity available, it may be possible to take out a Second Charge mortgage to purchase a new home, using the equity in your current home as security.

If this an appropriate alternative for you, Blue Pepper Mortgages are unable to advise in this area and we will refer to a 3^rd party.

How can a Mortgage Broker help?

Let to Buy Mortgages are a great option if, for whatever reason, you want to move home, without letting go of your current property. They can, however, be complex, particularly if you are new to property rental.

Here at Blue Pepper Mortgages, we can reduce the administrative burden of arranging two mortgages, whilst ensuring that your mortgages work best for your needs. Whether you’re better off using just one lender, or would benefit from two separate mortgage deals with different lenders, our goal is to find a Let to Buy deal to save you money and make buying a new property a smooth and enjoyable process.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE