Let-to-buy mortgages
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Let-to-buy mortgages
Often, moving home means having to sell your current property, a property you’ve probably dedicated a lot of time to decorating, improving and turning from a house into a home. But, what if we told you that selling up doesn’t always have to happen? With let-to-buy mortgages, you can remortgage your existing home, switch it to a rental property, and use the equity you release as a deposit for your next residential purchase. You get to move into a new house, without having to miss out on the rental income your existing one could generate.
With a let-to-buy mortgage, you can achieve two goals at once: you keep your current property, and buy your next home. At Everest Mortgages, we’re here to help you with both sides of the let-to-buy process, making the process as smooth and stress-free as possible.
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How does a let-to-buy mortgage work?
Let-to-buy mortgages allow you to let out the home that you currently live in, at the same time as buying somewhere new. By remortgaging your current home with a let-to-buy mortgage, you release equity, which is then used as a deposit for your new property purchase. Your current property becomes an investment that generates rental income, and you get to move somewhere new.
Let-to-buy mortgages are popular for people who want to:
- Move to a bigger property, but without selling their current home
- Keep their existing home as a long-term investment
- Take advantage of rising rental demand
- Start, or grow, a property portfolio as a landlord
- Move in together as a couple, without someone having to sell their property first
A let-to-buy mortgage involves two separate mortgage applications, both of which Everest Mortgages can help you with.
Let-to-buy remortgage on your current home
This involves you switching your existing residential mortgage onto a let-to-buy mortgage, so you can legally rent out the property. This remortgage usually allows you to release equity, which you can then use as your deposit.
Residential mortgage on your new home
Once your existing property is converted into a let-to-buy mortgage and you have an equity deposit, you can take out a standard residential mortgage to buy your new home.
Both applications need to work together and lenders will often assess them side by side, which is why it’s a good idea to work with a mortgage broker.
Let-to-buy mortgages vs. buy-to-let mortgages
Though there are some similarities between let-to-buy and buy-to-let mortgages – they both involve buying a property and they both involve renting out a property – there are some big differences.
- With a let-to-buy mortgage, you already live in the property you’re converting into a rental, rather than buying somewhere specifically to rent out.
- The loan from a let-to-buy mortgage is used as part of a bigger moving strategy and involves two mortgages being arranged at the same time, whereas the buy-to-let process only involves one.
- Remortgaging to a let-to-buy deal is often used to fund the deposit for your next home. With a buy-to-let mortgage, you will need a separate deposit first.
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Step-by-step guide to the let-to-buy process
Check your equity
To take advantage of a let-to-buy mortgage, you’ll need to have enough equity in your current home to release a suitable deposit. Make sure to check this before you start the process.
Get a rental valuation
You need to have a realistic idea of how much your property could generate as rental income. Don’t base this solely on what other properties in your area are being rented for, as this isn’t always accurate. Work with a letting agent, who can estimate the likely achievable rent and confirm local rental demand.
Speak to a let-to-buy mortgage broker
Let-to-buy involves two mortgages and two lenders, which makes the process slightly more complicated than getting a standard mortgage. Coordinating them yourself can be stressful, which is why it’s best to work with a specialist broker. At Everest Mortgages, we’ll handle both applications for you.
Assess the full costs
You need to fully understand the costs involved to get an accurate idea of how much you can realistically afford. Factor in stamp duty, legal fees, moving costs, letting agent or management fees, potential tenancy void periods and emergency repairs. These can all eat into your rental income.
Complete both mortgages
Once everything is checked, approved and the costs align, both mortgage applications progress together until completion.
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What do let-to-buy lenders look at?
Lenders look at a number of things before deciding whether or not to approve you for a let-to-buy mortgage, including:
- Rental income expectations – Lenders want to know how much you’re likely to make from renting out the property. Usually, the rent will need to cover between 125% and 145% of the mortgage payments.
- Equity in your current home – The amount of equity in your current home will determine how much of a deposit you have, which impacts the rates lenders are willing to offer you and the lending risk they’re taking on by approving you.
- Affordability for the new home – Your residential mortgage is still assessed on your income and outgoings. Lenders need to know you can afford the monthly mortgage payments on your new home.
- Credit history – Having a good credit score and a clean credit report helps, but some lenders will consider applicants with a less than perfect credit history.
- Property type and location – As the let-to-buy process involves you renting out your property, lenders want to know that there’s a strong rental demand for the type of property you have, in your specific location.
At Everest Mortgages, we know the let-to-buy process can be complicated, which is why we’re here to help. We’ll help you to understand the costs, risks and rewards, and guide you through every step.
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John is a CeMAP-qualified, whole-of-market mortgage adviser and Director of Everest Mortgage Services. With over 21 years in financial services, and a track record of 1,000+ mortgages arranged.
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FAQs
Frequently asked questions
How much can I borrow on a let-to-buy mortgage?
There are a lot of factors that go into determining how much you can borrow, and it’s all done on a case by case basis. Many let-to-buy mortgages have a limit of 75% or 80% of the value of your existing property.
Where does a let-to-buy deposit come from?
You can release equity, which creates a deposit, to be able to raise money to buy your new home. You can also add savings into the mix, if you want to keep the loan-to-value as low as possible.
Can I get a let-to-buy mortgage if I have bad credit?
You won’t be automatically ruled out from getting a let-to-buy mortgage because you have bad credit, but it does make things slightly more difficult. Some specialist lenders accept applicants with past credit issues, depending on the severity of the problem and how long ago they occurred.