If you want to buy your new home whilst letting out your existing property, then this might be the mortgage for you.
What is a Let to buy?
Let-to-buy is when you rent out your existing home and buy a new one to live in. Essentially, it involves having two mortgages at the same time. You convert your existing mortgage to a buy-to-let mortgage so you can let out your current home, and then take out a standard residential mortgage on the home
you’re buying.
Reasons to consider let-to-buy
There are a number of reasons you might be considering let-to-buy.
Perhaps the most common is that you want to use equity you’ve built up in your home to enable you to move to a new one, while also keeping the existing home as a long-term investment.
Let-to-buy could also be suitable for homeowners in the following situations:
- You’re in a hurry to move to a new home and can’t wait to sell your current property.
- You have struggled to sell your home due to market conditions.
- You want to buy a property with a partner but maintain ownership of your
current home. - You’re moving elsewhere for a few years but plan on moving back to your
home in the future.
How is let-to-buy different from buy-to-let?
Let-to-buy and buy-to-let might sound similar, but in reality they’re very different. With buy-to-let, you’re purchasing a property specifically to rent out, whereas with let-to-buy you’re buying a new property to live in yourself and renting out your current home.
The Big Challenge
The big challenge with let-to-buy is that you can’t simply rent out your home and buy another one without first switching your mortgage, as operating a buy-to-let property with a residential mortgage will be breaching the terms of your home loan. Instead, you’ll need to convert your residential mortgage to a buy-to-let deal (or obtain consent to let – more below). This isn’t always straightforward, as buy-to-let mortgages are generally interest-only, rather than repayment, and rates are usually higher than on residential deals.
If you’re looking to release equity from your current property to use as a deposit on your new one, this can add a further layer of complexity. Switching to a buy-to-let mortgage your existing mortgage lender may allow you to switch to a buy-to-let deal, but this will rely on your finances being reassessed based on its buy-to-let criteria. Also, this is likely not going to be the cheapest option.
If you can’t switch to a buy-to-let deal with your current provider, you could try remortgaging to another lender, though if you’re still in the introductory fixed term of your mortgage you could face expensive early repayment charges. Taking these complexities into account, some lenders offer specialist let-to-buy mortgages, which take some of the stress out of it all.
FAQs
Which mortgage is right for me?
This will depend on whether you are buying for long term property growth or to maximise your income. Our BTL Top Rated Adviser’s will show you.
Can I capital raise remortgage on my BTL property?
Yes, however it will be subject to affordability checks (rental income) and you must have the available equity in the property. There are lenders that can provide the funds prior to finding the new property.
Can I rent out a property with a residential mortgage?
Unfortunately, not. You will need a BTL mortgage if you intend to let the property however, if you are fixed into your mortgage and wish to let it out you can request a ‘Consent to Let’ from your mortgage provider and they may grant you permission to let the property with your residential mortgage until your next remortgage. The lower your LTV is the more likely a lender is to agree this.
How much deposit do I need for a BTL property?
Although you only need a 20% deposit, we recommend that you have a minimum of 25% deposit as interest rates will improve significantly by simply increasing your deposit by 5%.
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