Funding Your Property Purchase With a Let-to-Buy Mortgage
With a let-to-buy mortgage, you have two mortgages with the same lender. A let-to-buy mortgage allows you to purchase a new home and let out your existing property to tenants to bring in extra income. It is different from a buy-to-let mortgage.
Let to buy is a type of mortgage designed for people that want to buy a new home to live in but cannot, or do not, want to sell their existing property.
In practice, it involves having two mortgages with the same lender. You take out a standard mortgage to purchase the property you want to move to, and take out a let-to-buy mortgage on your existing property, so that you are then free to let it out to tenants and bring in funds.
How does let to buy work?
With a let-to-buy mortgage, you release some of the equity in your existing property, which you can then use as a deposit on the new home you’re buying.
You then let out your old property to tenants, using the rent they pay to cover the monthly repayments on the let to buy mortgage.
» MORE: How do I rent out my house?
Is let to buy different from buy to let?
While the names are similar, they are rather different propositions. A buy-to-let mortgage is a loan to purchase a property you specifically intend to let out.
However, let to buy is designed for those who want to buy a new home but are either unable, or do not want, to sell the property they currently live in.
How to get a let-to-buy mortgage
Let-to-buy lenders will look for certain things, such as evidence that the rent you will receive will be more than enough to cover repayments on the let to buy portion of the mortgage. They will also want you to provide proof that you are buying a property at the same time as switching your mortgage.
Let-to-buy mortgages are specialist products, with relatively few lenders offering them. While you may be able to search for one yourself, some borrowers prefer to use a mortgage adviser.
» MORE: Do I Need a Mortgage Adviser?
An independent adviser will be able to guide you towards which products are most appropriate for your circumstances, as well as which lenders are most likely to be happy lending to someone with your financial history.
What to consider with let to buy
One big issue to consider is stamp duty, the tax paid when you purchase property. The tax rates are 3% higher when you are buying a second home, so going down the let-to-buy route rather than simply selling your old home will mean a larger tax bill.
You will also effectively have two separate mortgages to pay, which could be a challenge for your budget. In addition, the rates charged on landlord mortgages, whether a let to buy or buy to let, may be more expensive than those charged on ordinary residential mortgages.
What about consent to let?
You are not allowed to let out a property that has a residential mortgage against it, as this would be against the terms of the mortgage contract.
However, it may be worth investigating consent to let, which is, as the name suggests, where a lender permits you to let out a property that you bought with the intention of living in it yourself.
This is generally only acceptable as a temporary solution, for example, if you want to let the property out for a few months while you try to secure a buyer.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more