In This Article
What is a let to buy mortgage?
A let to buy mortgage is basically a buy to let mortgage but the difference is that you take one against the property that is your main residence on application on the basis that on completion, you will rent the property out and move into the new property that you are buying.
For example, you may live in a house worth £300,000 that has a mortgage against it of £100,000. You feel that the house is no longer suitable for your family, so you take a let to buy mortgage against it of £200,000 to pay back the current lender and raise a deposit of £100,000 towards the next property.
If the next property was £400,000, you may then need a residential mortgage of £300,000 to complete the purchase assuming you have money aside for stamp duty and fees, etc.
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Why do people take let to buy mortgages?
People may take let to buy mortgages for a number of reasons. The most common one is because they want to move to a new property, perhaps larger or in another area, and they do not want to sell their current home.
This may be because it allows them to own two properties with one generating an income, the other being the new main residence. If the mortgage is repaid over time, it could result in having another property to generate a retirement income in addition to your main home.
Another reason, when taking a let to buy without the onward purchase, could be to make sure your money is still invested in property even if you no longer wish to live there yourself. For instance, you may relocate for your job, rent your new residence and keep the current property let with a tenant paying you an income.
How do lenders verify that another property is being bought when I take a let to buy mortgage?
For lenders that require an onward purchase, they each have their own ways of verifying that another property is being bought as part of the transaction.
Some may ask to see the mortgage offer for the new property, some may ask solicitors to confirm that this is taking place and some lenders will even insist that the same solicitors work on both the let to buy remortgage and the onward residential purchase.
The transactions often have to complete simultaneously with the owners of the let to buy property needing to vacate immediately so they are not in breach of the mortgage terms.
To work out what lender would be best for you when considering a let to buy mortgage, it would be best to speak with an experienced mortgage adviser that can work this out for you.
Let to buy mortgage with no onward purchase?
Most let to buy lenders require you to be buying a new property on completion of the transaction. However, this is not always the case.
There are a few lenders that can consider lending on the basis that you are turning your home in to a buy to let property and vacating for another reason. For instance, this may be to relocate for a new job where you are not ready to buy yet. You could be refinancing the current home, raising some money from it for a future deposit and moving into a rental property with a view to buying in six months when you know you want to live in the area long term.
A let to buy mortgage would allow you to take the correct type of mortgage now, possibly raise money and with the right lender, not obligate you to buy immediately.
Other uses for this type of scheme may be if you were exiting your home to rent it out and then move in with a partner. Otherwise, you may have relatives that require care, and you are moving in with them.
There are many reasons why a person may need this type of transaction. The lender will need to be comfortable that the reason is plausible and may need verification of the onward plan, for example, a relocation letter from your employer if you were relocating.
They would need to know your onward address so correspondence about the mortgage could be sent to you post completion. Read more about Changing Mortgage To Buy To Let.
Your mortgage adviser would be able to give you advice on which lenders may be able to help you and what you would need to supply.
How much do I need to earn to get a let to buy mortgage?
Every lender has their own criteria on what an applicant needs to earn to get a let to buy mortgage. Some have no minimum income criteria at all whereas others may have a certain threshold, such as an earned income of £25,000.
The lender that can consider let to buy mortgages with no onward purchase seem to have a minimum income criteria.
With buy to let and let to buy products, the maximum loan is mainly linked to the value of the property (for example, not passing 75% loan to value) or the rental income that it’s expected to generate.
Each lender has their own stress test that the expected rental income needs to generate to then work out what the maximum loan would be. This can change based on the product (for example, some lenders offering a higher loan on 5-year fixed mortgages than 2-year fixed mortgages) and some offering more to people on different tax bands (e.g., Lower rate taxpayers being offered more due to a lower tax liability).
There are many lenders in the market all with their own individual criteria so it’s best to talk with an experienced mortgage adviser that can gain an understanding of the situation, the factors involved and then advise how much you could borrow.
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Do all lender’s offer let to buy mortgages?
No, not all lenders offer let to buy mortgages. Even lenders that offer ‘buy to let’ mortgages will not lend in situations where it will be against a property that is currently the main residence of the applicant.
Fortunately, many lenders do offer these, but each have their own individual criteria which you would need to meet to be offered the mortgage.
This is where speaking with an independent mortgage adviser is always wise to work out which lenders may be willing to consider your individual situation.
Will there be stamp duty to be paid when taking a let to buy mortgage?
If you’re turning your current home into a let to buy and purchasing another property, you will likely have to pay stamp duty on the new property which would be at the additional amount due to owning a second property.
There may be circumstances where this is not the case (for example, another property selling) and rules regularly change so best to get professional advice on this by speaking with a property solicitor or tax adviser.
This stamp duty calculator may be a useful resource when working out your stamp duty bill but it’s no substitute for professional advice.
Do I need a mortgage adviser to get a let to buy mortgage?
It is not mandatory to use an independent mortgage adviser for a let to buy mortgage, but it is recommended.
The reason for this because the mortgage market is large and also complex. Without the help of an experienced mortgage adviser, you may not know who the best lender for your individual situation will be. It may be that where you are passing criteria for one lender, you are failing criteria for another.
A mortgage adviser would speak with you to gain a full understanding of the scenario before recommending a lender accordingly.
Also, with let to buy and buy to let mortgage products, some lenders will only lend these through a financial intermediary which would mean that you need to get advice from a mortgage adviser to access these products.
If you would like to receive bespoke advice from an experienced mortgage adviser with no obligation to proceed, I NEED ADVICE can arrange this for you if you complete the contact box.
Am I allowed to live in my home once the let to buy mortgage has completed?
You are not allowed to live in a property that has a let to buy or but to let mortgage against it. The lender has agreed to lend on the basis that the property will be tenanted on completion so living in it (or allowing a family member to live in it) will be a breach of their terms and conditions which could land you in trouble.
Buy to let mortgage products are unregulated so not suitable for residential use for you or your family. Living in a property with this type of mortgage is considered ‘scheme abuse’.
If you planned to move into the property again, you would need to arrange to change the mortgage to a residential loan. Some let to buy lenders do not offer these and the ones that do may require a full application to do so (if they agree at all). It would likely mean having to refinance to a whole new lender for a residential mortgage which would be assessed on personal affordability.
Will I need to pay tax when renting out my property with a let to buy mortgage?
When you rent out a property in the UK, you need to tell HMRC and do a self-assessment. This is for both a let to buy property or any other type of investment property that you buy.
You should factor in your expected tax bill and all other costs that go with owning an investment property when calculating whether it is financially viable for you.
If you are planning on buying a buy to let property or changing your current home into a let to buy, you should take professional advice from a tax adviser.
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How would I find out how much rent I would get from my let to buy property?
If you are considering taking a let to buy mortgage to then rent your current home out, it would be wise to find out how much that you would likely receive. Your new lender will also need to know this figure.
Knowing how much rent you will get will help you to calculate how much tax you’ll owe, what you’ll need to pay the management agents (if you take one) and how much may be left after paying your mortgage payment.
The best way to find this out is by contacting some local lettings agents and asking them to come out and value the property for you. Many will not charge for doing this and will be able to give you the costs for rental services at the same time.
Alternatively, you may get a good idea by looking at properties similar to your own up for rent on websites such as Rightmove, Zoopla and On The Market.
Conclusion
Taking a let to buy mortgage can be a solution for keeping your current home in order to have an investment property following completion that is bringing in an income.
It’s not always mandatory to have an onward purchase but it will depend on the lender and the scenario. Most lenders do however require an onward purchase, and all would need to be comfortable that the property will be vacated on completion.
If you are thinking about taking a let to buy mortgage, speaking with a mortgage adviser that has experience in these types of transactions is recommended.
If you would like bespoke advice with no obligation to proceed, I NEED ADVICE can arrange this for you if you complete the contact form.
They are experienced, which can boost your chances of being approved.
