What is a let to buy mortgage?
Updated 21st September 2020
What is a let to buy mortgage?
In the simplest terms, this is when your current residential property is changed to a buy-to-let mortgage and you purchase a new residential property. During this process, you can raise cash from your current property to use as a deposit for the new residential property, subject to having enough equity in the property. Let to buy mortgages are becoming increasingly more common.
Because you have lived in the property this now falls under consumer buy-to-let regulations, which means that the mortgage is regulated by the FCA.
Most lenders will want a simultaneous completion, with both properties to complete on the same day. There is however a lender who will allow you to raise funds before you purchase your new residential property allowing you to rent in the interim, this is where your mortgage expert will be able to advise you on the best way forward.
What is a consent to let mortgage?
Consent to let is an alternative to let to buy, some people may want to do this as they don’t need any extra funds on a re-mortgage or are maybe tied into a long-term fixed rate and do not want to incur any early repayment charges. Some customers are extremely fortunate to have tracker deals as low as 1.5% and some even lower than that, and it would therefore not be good advice to redeem these products.
Some lenders may charge a higher interest rate or a fixed yearly fee to give the consent to let, with some lenders also giving you a certain timescale in which the mortgage must be changed into a buy-to-let.
It is worth keeping in mind that not all lenders will allow you to have 2 residential mortgages, this means there will be less options available and lender affordability calculations could restrict the maximum borrowing for your onward purchase.
What’s the difference between a let to buy and buy to let mortgage?
In simple terms a let to buy is a property you already own and now want to rent out. Buy to let mortgages are for you to purchase a property to rent out to tenants.
With a let to buy mortgage, this will involve having to take out a new mortgage for your onward purchase and normally completing at the same time as your let to buy mortgage. We would advise you to use the same solicitors for both mortgages.
When purchasing any additional property, you will be liable for additional stamp duty click here to find out more.
Which lending criteria will affect my let to buy mortgage?
The criteria around let to buy mortgages is tight and clients will need to meet certain criteria.
The following will be considered with a let to buy mortgage
- Age of applicants
- Equity in the property
- Expected rental income
- Overall affordability
- Credit profile
- Loan to value of the new residential
Will I need to pay extra stamp duty?
All second properties are liable for the extra stamp duty. This is another reason to seek the advice of a tax specialist before making any commitments.
Below is the stamp duty table
- Check with your broker to conform these are still accurate
|Purchase price of the property||Rate of Stamp Duty||Additional Property Stamp Duty|
|£0 – £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1,500,000||10%||13%|
|Over £1.5 million||12%||15%|
If your property is worth £40,000 or less then you wont be liable for any additional Stamp Duty. You can currently claim back any additional Stamp Duty if the property is sold within 3 years.
Can I get a let to buy mortgage with bad credit?
Yes, its possible. The criteria can be tight and there aren’t as many options for let to buy mortgages as buy to let mortgages.
There are lenders who will consider an application with previous bad credit. With any bad credit mortgage, the interest rate will be slightly higher.
Let to buy monthly rental income.
No mortgage lender is going to agree to lend if the investment figures don’t stack up.
There will be a minimum percentage of 125-145% of the mortgage payment as a stress test. The lender does this to ensure that monthly repayments can be met.
Knowing how much your property could be rented for is a vital piece of information any mortgage broker will need. You can do this by checking similar properties in your local area alternatively you could get a local estate agent round to give you a rental appraisal.
Speak to a let to buy mortgage advisor.
There are many lenders available ranging from high street to specialist lenders. Most people go to their own bank, get declined or can’t borrow what they need – just because one lender has declined you, don’t give up.
Our mortgage experts will look at each case before deciding which lender is right for you and your individual circumstances. All the mortgage brokers we work with are whole of market and offer unbiased advice. They will have access to all the specialist lenders to really enhance your chances of achieving the mortgage you need.
The expert brokers we work with have experience in dealing with all aspects of let to buy mortgages, and importantly using the whole of the market to access the very best deals available.