Let to Buy Mortgage Explained

You might have heard of a buy-to-let mortgage, but what is a let-to-buy mortgage? This type of mortgage can allow homeowners to be more flexible when selling their home and buying a new one and can help potential property investors begin their investment journey. Read on to find out more about let-to-buy mortgages, how they work, the advantages and drawbacks of let-to-buy mortgages, and more.

Table of Contents

What is a Let-to-Buy Mortgage?
How is Let-to-Buy Different from Buy-to-Let?
How to Get a Let-to-Buy Mortgage
Is Let-to-Buy Subject to Stamp Duty?
Pros and Cons of Let-to-Buy Mortgages

What is a Let-to-Buy Mortgage?

A let-to-buy mortgage is when someone buys a new property that they will live in but keeps their old property and rents it out to tenants. The mortgage on the old property will convert to a buy-to-let mortgage, and the mortgage on the new property is just a normal residential mortgage. This is ideal for people who want to move back into their old property one day, they are unable to sell their old property, maybe because property prices have dropped since they purchased it, they are moving in with a partner but want to keep their old property, or they want to retain their old property as an investment. This could be a good way for someone to get started as a property investor, although they will have to come up with the deposit for the second property and be responsible for two mortgages.

In fact, by renting out your old home and buying another without switching your mortgage, you may be in breach of the terms of your original mortgage, so it is essential to convert the original mortgage into a buy-to-let mortgage if you want to do this. Always check the terms of your current mortgages before taking steps towards let-to-buy. Some mortgage lenders will give you ‘consent to let’ especially if you are only planning on letting the property for a short time, e.g. while it is on the market.

How is Let-to-Buy Different from Buy-to-Let?

They are quite similar, but the important difference between let-to-buy and buy-to-let is that with the former, you are buying a new property to live in and renting out your previous property, and with the latter, you are buying a new property with the intention of renting it out.

How to Get a Let-to-Buy Mortgage

You will need to have built up enough equity in your property to release enough cash to put forward as a deposit on the new property unless you have a separate source of funding.

In some cases, your existing mortgage provider may be willing to let you switch to a buy-to-let mortgage, but, likely, you will still have to go through an application process with a credit check, proof of earnings, and more. You could approach another lender and even remortgage your original property with them but this could incur early repayment charges. You could release some of the equity in your original property to use towards the deposit on a new property, but this can complicate things and depends on the amount of equity you have built up.

To obtain a let-to-buy mortgage, you will need to prove that you are buying a new home at the same time as you switch your mortgage. You will also need to provide evidence that the rental payments will be enough to cover your mortgage payments and have enough equity in the property to meet the mortgage lenders’ required LTV (loan-to-value) ratio which is usually around 75%. Borrowers may also have a maximum age of 70 or 75 depending on the mortgage lender.

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Is Let-to-Buy Subject to Stamp Duty?

Just like buy-to-let, let-to-buy is subject to stamp duty, as you would be the owner of two properties at the same time. If you sell your old property within 3 years, you can claim back the stamp duty from HMRC.

Pros and Cons of Let-to-Buy Mortgages

Pros of Let-to-Buy Mortgages

You can buy a new home without having to sell your existing one, which is ideal if you are struggling to sell your existing property or plan to move back in someday, e.g. you are temporarily relocating for work.
It can take the pressure off having to sell your current property quickly, especially if you are in a chain.
You will receive an income from the property you rent out, increasing your profits.
Owning two properties means you can build up twice the equity as you would with a single property.

Cons of Let-to-Buy Mortgages

You will be responsible for paying two mortgages, which is a large financial burden and can be stressful.
You may struggle financially if you have void periods in your rental property.
Let-to-buy mortgages are rare, and the interest rates aren’t as good as regular residential mortgage rates due to the increased risk taken on by the lender.
If housing prices fall, you are hit twice as hard if you own two properties.

Some mortgage lenders specialise in let-to-buy, buy-to-let and other mortgage products for property investors and will be happy to work with you to find a deal that suits you both, so take the time to shop around when looking for let-to-buy mortgages. Let-to-buy mortgage applications can be more complex than normal residential mortgages, so expert advice might be required. You may need to use a mortgage broker for a let-to-buy mortgage, as some lenders will only deal with brokers and not directly with buyers. A broker can also offer you specialist advice based on their experience and your financial situation and goals.

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