7 Stages of Let to Buy Mortgages - Simplified

#1. What is a Let to Buy mortgage?

Let to Buy mortgages are the simple solution for those who wish to purchase a new home whilst maintaining possession of their current home and letting it out.  

#2. Why do people choose Let to Buy mortgages?

• To free up cash

A Let to Buy mortgage allows you to release equity in your current home and use it as a cash deposit on your new one. Additionally, by renting out your old home, you can generate another source of income.

• Do not want to sell

Selling is not the only option. Let to buy mortgages allow you to keep your current home as a long-term investment and benefit from any future rises in property value. It also helps you avoid the added stresses selling a property can cause.

• To move when you choose

Instead of being tied up in a chain or waiting for a buyer, you could opt to move sooner, especially if you’ve got your eye on the dream property. If you have enough equity, you could choose to remortgage with a let to buy mortgage and use the money for your deposit. You would then let out your existing property and use the income to cover the cost of the mortgage, allowing you to take out another mortgage on your new home which your current salary, or other source of income, would cover.    

#3. Who are Let to Buy mortgages best suited to?

One of the most popular occurrences is that of couples who perhaps meet, and move in together, later in life and already have their own homes. Often, in this scenario, the couple will look to move in to one of the properties whilst renting the other one out on a let to buy mortgage. Alternatively, they may choose to release equity in both of their existing properties and place a deposit on a new home, whilst renting out their old homes.    

#4. What is the lending criteria for Let to Buy?

Understandably, whether it’s a let to buy mortgage you seek, or any other mortgage product, there’s usually some strict criteria to address. Such criteria could look a bit like this:

• Minimum age: 25
• Maximum age: 75
• Deposit or equity of 25%
• Monthly rental income of 125% of mortgage interest
• Good credit rating
• Open to & passing of affordability assessment

#5. How do the mortgage lenders work, when it comes to Let to Buy?

Typically, mortgage lenders will release up to 75% of the value of your property on let to buy basis. For instance, if your home is worth £200,000, and your outstanding mortgage is £100,000, you could release an extra £50,000 towards your next deposit.

• Property value = £200,000
• 75% of £200K = £150,000
• Minus outstanding mortgage of £100,000
• Additional equity = £50,000

This scenario would result in a let to buy mortgage of £150,000 on your current property which could translate to a monthly mortgage cost of somewhere around the £400 mark.    

#6. What else is there to consider with Let to Buy mortgages?

Like any mortgage deal there are always implications. Here are three things to consider:

• Stamp Duty

An extra 3% is added to stamp duty charges for an ongoing purchase, as it would be your second property.

• Tax Implications

By renting out your property, there are added taxes. Couples tend to transfer ownership to the low rate tax-payer.

• Landlord

If this makes you a first-time landlord, make sure you have additional funds for any rental voids or issues.    

#7. What’s the difference between Let to Buy and Buy to Let?

Although these two are similar in that they are both mortgage products for those looking to rent out a property, they work slightly differently.

• Let to Buy

Usually this is a situation for those already living in the property which they want to let out in order to move elsewhere. Therefore, they’d need to remortgage to a let to buy mortgage in order to release equity for their new property.

• Buy to Let

These are designed for those looking to buy a property to let out or to remortgage one that is currently let.  

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Choosing MortgageKey guarantees an honest, friendly and impartial advice. By speaking to one of our advisors, we can carry out a full comparison across the market to unlock the right let to buy mortgage for you. Visit our Let to Buy page for more details. Our professional service has won us awards and our expertise have forged excellent relationships with both our lenders and our customers.

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