Let to Buy Mortgages
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Let to Buy Mortgages
Lewie and Travis from JXP Mortgages talk us through Let to Buy mortgages.
What is a Let to Buy mortgage and how do they work?
Let to Buy is essentially a way of keeping your current home and buying a new one. Effectively, you will remortgage the current home onto a Buy to Let mortgage and use the rental income to help finance the repayment costs.
At the same time, you can also release equity in the current home to use as the deposit on the new one. You need to use your own income to fund the mortgage on the new property.
What’s the difference between Let to Buy and Buy to Let?
The main difference between Buy to Let and Let to Buy is the position of the property. A Buy to Let is used to purchase or remortgage a property to let out. A Let to Buy is used to rent an existing home that wasn’t previously let.
Who is a Let to Buy mortgage for?
It’s for anyone who is interested in retaining their existing property as an investment. It can also mean not having any chain behind you for a house purchase transaction.
What criteria do I need to meet for a Buy to Let mortgage?
There’s many lenders offering these products and the criteria differs depending on the lender. Common factors are typically age at the start of the term – you need to be at least 18 – and at the end of the term. Most lenders consider you up to age 75 or 85 when the mortgage ends.
They’ll also focus on your personal income. Some lenders have a minimum income requirement of £25,000 per year. Others don’t have that requirement.
Then they’ll look at the stress test on the rental income to assess how much you can borrow. Typically say the rental income has to be 125% of the mortgage repayment based on an assumed interest rate. A final, basic requirement is that the property has to be in the UK and either freehold or leasehold.
How much deposit do I need for Let to Buy mortgage and how much can I borrow?
It works similar to a Buy to Let in terms of minimum deposit – it’s generally 25% of the property value. The amount you can borrow will be led by how much the property will rent for.
What are the pros and cons of Let to Buy?
There are a number of reasons why you would consider doing it. The most common is that you want to use the equity you’ve built up in your home to enable you to move to a new one, while keeping the property as a long term investment.
Let to Buy can also be suitable if you’re in a hurry to move to a new home and can’t wait to sell your current property. Or, perhaps you’ve struggled to sell your home due to difficult market conditions. That could be pertinent at the moment [podcast recorded in June 2023].
You might want to buy a property with a partner but maintain ownership of your current home just as extra protection for yourself. Or perhaps you’re moving elsewhere for a few years for work, but you plan on moving back to your home in the future. The pros are that Let to Buy gives you more choice in those situations.
The main con to consider is stamp duty. Because you’ll have two properties at the point of completion, you will have to pay the second property surcharge. That’s an additional 3% above normal stamp duty.
What are the alternatives to Let to Buy?
The only other alternative is to wait to sell your existing property. It gives you that more choice – but in terms of further options, there isn’t a lot out there.
How can a mortgage broker help if they’re looking into Let to Buy?
The overall process is a lot more complicated, because you’re almost doing two applications at once under two different criteria. But a mortgage broker will come in and do all of it for you.
Many people enquiring about this type of mortgage are not aware of the additional stamp duty, so we can help with educating and highlighting that to clients. Plus, some Buy to Let lenders don’t offer products direct to customers. They’re only available through a mortgage Broker. So there’s a lot of value we can add in these situations.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.