Let-To-Buy Mortgages

A let-to-buy mortgage enables you to move and buy new property while keeping your current home and renting it out to tenants.

In this article, we’ll help you understand everything you need to know to get a let-to-buy mortgage.

We’ll explain; how it works, what the eligibility criteria and rates are and also discuss the risks involved.

What is a let-to-buy mortgage?

Let-to-buy enables homeowners to keep their current property and let it out so they can move out and buy another home.

This dual arrangement can be a great solution if you are ready to purchase a second home and rent out your existing one.

It’s also a popular option for couples where one person has a home but they want to buy a new place together without having to sell the property.

Some people opt for let-to-buy because the property market isn’t favourable to selling their home but they’re ready for something new – or maybe their property has been on the market for some time without buyers, and renting it out while they purchase a new home has become a more attractive option.

You may also simply want to keep the existing home as a long-term investment and grow your property assets.

How do they work?

A let-to-buy mortgage involves having two mortgages at the same time.

It involves converting your residential mortgage into a buy-to-let and taking out a new residential mortgage for the second property.

You’ll have:

It’s not always easy to afford buying a second home, so people often opt to release equity from the property to be rented out and then use this equity as a deposit for the second home.

Often both mortgages are taken out with the same provider – but this may not always give you the best rate – in some cases, more favourable terms can be found by using two different lenders. This is where a specialist mortgage broker can help – they’ll have access to the entire let-to-buy market and will know exactly how to pair you with your best possible rates.

How to switch to a let-to-buy mortgage

Here are the steps to follow to get your application off on the right footing…

Step 1 – Prepare your documents

To prepare for getting two mortgages, you’ll need to have a bit of extra paperwork ready – documents with proof of ownership and your mortgage information for your current home as well as information prepared on the size of the mortgage you would need to purchase your second home.

In addition to this, you’ll need the usual documents including proof of income and proof of address.

Step 2 – Check your credit and affordability

It’s helpful to have an official letter from 1 or 2 letting agencies confirming how much you can expect to rent your home for (more on this later).

And as with all mortgages, your credit score will play a big role in determining your affordability, so check to ensure this is up-to-date and all income is logged.

Step 3 – Contact a specialist broker

Contacting your existing lender to request a conversion to a let-to-buy mortgage is not always the best option. Rates may be higher than need be and they often charge an extra fee for ‘leaving’ your residential mortgage early and converting it.

However, some specialist let-to-buy lenders make the process easy with no extra conversion fees involved.

Applying for and managing two mortgages can be complex; that’s why it’s recommended you work with a specialist broker who can save you stress, hassle, time and money by taking you directly to the lender who will not only approve your application, but offer you the best rates and terms.

Brokers also often get exclusive deals that aren’t available to the general public.

This is where we can help! If you get in touch we will arrange for an advisor we work with, who has experience of this type of lending, to contact you straight away.

How do lenders judge eligibility?

There are eligibility criteria that are specific to getting a let-to-buy mortgage.

For this type of home loan lenders will look at the following:

Rental potential

Mortgage providers require you to get a higher rent than you spend on mortgage repayments. As a minimum they usually require a monthly rental premium equivalent to 125 -145% of mortgage repayments.

To work out how much you can charge for your property, you’ll need to get quotes from three letting agents to provide proof of expected rental income; these rental quotes are included in lenders’ affordability assessment and the agencies must be registered with the Association of Residential Letting Agents (ARLA).

Rental yield is an important indicator of how profitable your rental investment property is. You can use our calculator below to work out the rental yield for the property you’re looking to buy:

Legal requirements

Many lenders will request a copy of the mortgage offer for your new home and some request that you use the same solicitor for the second mortgage as you did for the first.

Personal income

Most lenders have a minimum non-rental income requirement of £25,000, though some will be more flexible if you can prove the ability to repay.

Residential property ownership

Most lenders will require you to have lived in your residential property for at least six months to one year

Other factors

Other variables that could impact your eligibility and the rates you qualify for include…

How much can you borrow?

Although the maximum loan amount will vary from one provider to the next, many lenders use 4 times your income as their basic starting point and some will use 4.5 times.

A smaller number of lenders offer between 5 and 6 times income.

However, for let-to-buy mortgages, because there are two mortgages involved, the overall lending amount will be looked at by most lenders on a case by case basis and will depend upon both the rental yield and the evidence you submit for your earnings.

Which lenders offer let-to-buy mortgages?

A range of different lenders offer let-to-buy mortgages, including mainstream mortgage providers such as Barclays and HSBC, and lenders you won’t find on the high street, like Pepper Money, Accord Mortgages and Bluestone.

Lenders who won’t even consider let-to-buy include Swansea Building Society, Foundation Home Loans and Beverley Building Society.

When searching for a willing lender, you might encounter the following caveats…

The best way to avoid falling afoul of lender restrictions and find the best deal is to speak to a let-to-buy mortgage broker.

This is a much better alternative to going direct to a lender, as it would open up an entire market of products to you.

What are the risks involved?

Some of the potential risks, or challenges, for let-to-buy would be:

Get matched with a let-to-buy mortgage broker

Getting a let-to-buy mortgage can be a complex process and going through your current lender isn’t always possible or the best option.

However, if you go through multiple lenders for your mortgages you may run into  trouble trying to get transactions to complete at the same time to finalise your let-to-buy.

A specialist mortgage broker can help you manage the process on both mortgages from start to finish, ensure your mortgage approvals complete on time, and take you directly to the lender with the best terms and rates for your particular situation.

Call us on 0808 189 0463 or make an enquiry for a free consultation with a let-to-buy broker who specialises in helping people like you get the mortgage they need.