Let to Buy Mortgage

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Let to Buy Mortgage

Let to Buy Mortgage

Kelly Nicholson is here to talk about Let to Buy mortgages and when they can be a good idea.

What is a Let to Buy mortgage and how do they work?

A Let to Buy mortgage is for people who own a property on a residential basis that they currently live in but who want to buy a new Residential property and rent out the existing. Let to Buy is a way for them to buy a new residential property but keep that existing property in the background if they do not wish to sell. This usually involves raising equity out of the property to use as the deposit towards the onward Residential property. Essentially, you’re changing a residential property into a Buy to Let.

What is the difference between Let to Buy and Buy to Let?

They’re regulated differently and not all mortgage lenders will offer a let to buy mortgage. A Let to Buy mortgage is basically changing the properties usage from Residential to Buy To Let so the initial purpose of purchasing the property was residential use and now circumstances have changed. A Buy to Let mortgage is bought with the sole intention of renting it out as an investment.

Can anyone get a Let to Buy mortgage?

As we are remortgaging a property you already own and live in, you have to be a home owner for this to apply. But if you live in a property and want to buy something else, while keeping that existing property as an investment, that’s where Let to Buy comes in.

What criteria do I need to meet for a Let to Buy mortgage?

Realistically, the criteria is similar to the criteria for a Buy to Let mortgage. Some lenders set a minimum income that you need to earn personally and they will also stress test the rental income that the property will achieve in order to assess affordability.

There are also Loan to Value limits, you need a certain amount of equity in the property to make it work. The usual criteria is up to 75% Loan to Value the same as it would be on a Buy to Let mortgage.

How much deposit do I need for a let to buy? How much can I borrow?

Borrowing is based on the rental income that the property will achieve. Lenders assess affordability on that basis and usually go up to 75% Loan to Value. You will need to keep 25% equity in the property to make it work. A handful of lenders will allow you to keep 20% equity in the property but the majority need that 25% amount.

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What are the pros and cons of a Let to Buy?

The pros are that it allows you to keep that property. If you’ve lived in a property for a long while, paying your mortgage off and have quite a bit of equity in the house. A Let to Buy allows you to release some of that equity to use as your deposit for a new residential purchase, while keeping an investment property. Some people prefer the idea of keeping the property as an investment rather than selling it.

The main disadvantage is that at the moment [podcast recorded in February 2023], you would currently pay surplus stamp duty on the new residential property because you would technically own more than one property so are therefore liable for the extra stamp duty charge. That’s an important thing to consider when you’re looking at costs and how much can be raised out of the property.

Can I get a Let to Buy mortgage with bad credit?

Some lenders will allow missed payments, CCJs or defaults, whereas others don’t. It is just down to criteria and what a specific lender accepts individually. But yes, technically you can with the right lender. It just may mean you don’t get the best interest rates if you have any kind of adverse credit.

Can I get a Let to Buy mortgage as a First Time Buyer?

No, because Let to Buy is for somebody who already owns a property. You can’t buy a Let to Buy property. You would buy either a residential property or a Buy to Let depending on your purpose.

How does remortgaging a Let to Buy work?

The lenders will as always do their standard credit checks and background affordability checks. You would remortgage and potentially raise capital as the deposit to buy the new property. Any capital that you raise goes to the solicitor to pass on as your deposit for the new property. We tend to suggest you instruct the same solicitor to deal with your Let to Buy remortgage and the onward residential purchase as it makes things go through more smoothly.

The lenders like to see that you are moving out of that property and simultaneously moving into a new residential property, in order for it to tick the Let to Buy box.

What are the alternatives to Let to Buy?

Let’s say you’re moving out of a property and wanting to buy a new one – perhaps to move in with a partner. If you are tied into a fixed rate deal that doesn’t end soon, some lenders will allow you to apply for Consent to Let. You can contact your existing lender and explain that your circumstances are changing and that you now want to rent this property. They will usually grant you Consent to Let that property out. However, they won’t allow you to raise any capital from that. So if you need equity from that property to buy something new, you would have to remortgage to a Let to Buy. There wouldn’t really be an alternative.

If Consent to Let works for you, you wouldn’t necessarily need a Let to Buy mortgage until your fixed rate ends. There isn’t really an alternative if you need to raise equity, but if you don’t need that, there are other ways around it.

How can a mortgage broker help if somebody is looking into Let to Buy?

With the market and the current climate as they are, things are up and down and interest rates are changing very quickly. So it’s always important to speak to a broker to make sure you are getting the most suitable and cost-effective mortgage product for you. We look at the interest rates and consider the fees, the overall process and we also help you manage the solicitors.

We know what lenders need to know in terms of their criteria also. Some have a minimum income requirement and some will only allow you to raise a certain amount whereas others might lend a little bit more, so it’s best to speak with a broker who will assess your full circumstances now and moving forward. We make sure you’re getting the most appropriate product for you, with tailored advice.