Updated: December 17, 2021

Let-To-Buy Mortgages

What is a let-to-buy mortgage? What are the best rates and providers? Read our in-depth guide to find out who they are suitable for and how you can get one.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 17, 2021

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.

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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:

1. A buy-to-let mortgage on the property you are moving out of

2. A new residential mortgage on the property you are buying

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 yield 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).

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…

  • Deposit: The higher the deposit the more favourable the rates
  • Age: Many lenders cap the borrowing age at over 25 and under 75. Often the younger you are the lower your rates are likely to be as you can take out a longer mortgage term.
  • Credit history: Any bad credit issues on your credit report could impact your rates.
  • Income type: Self-employment income or income from benefits, commissions or bursaries are sometimes seen as riskier and thus will up the rate.

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…

  • Stricter loan-to-value caps if the property is not a primary residence
  • Extra lender scrutiny to make sure you can afford both mortgages
  • An assured shorthold tenancy must be in place from day one
  • Higher rental income requirements

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:

  • Costs of managing the tenancy or finding a competent letting agency to do this for you
  • Finding good paying tenants who are happy to pay the rent you need to cover the mortgage payments
  • Documenting your rental income and filing tax returns through self-assessment on time
  • Everyday hassles of being a landlord – costs of any repairs etc.

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.

FAQs

How is let-to-buy different to buy-to-let?

A let-to-buy is a mortgage you take out so you can rent out your home while buying and moving into another. So, it’s a dual arrangement. A buy-to-let is a mortgage solely for buying a property you intend to rent out.

What are extra costs for getting a second property?

There will be stamp duty charges to pay for your let-to-buy mortgage and homeowners will have to pay an additional 3% on second properties – so it’s important to include this 3% tax when planning your mortgage budget. However, if you choose to sell your first home within three years of buying your second home, you will receive a full refund of the 3% charge from the government.

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We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Buy-To-Let mortgages. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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