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Let to Buy Mortgages

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Kevin Spear answers the most frequently Googled question on Let to Buy mortgages.

Watch and listen to the podcast below.

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

Put simply, Let to Buy mortgages are a way for a client to raise money on the house they live in now, in order to purchase a new home and not sell the existing home.

What’s the difference between Let to Buy and Buy to Let?

A Buy to Let mortgage is simply a mortgage for buying an investment property. The lender is going to lend around 75% of the value of that property and you’ve got cash for the rest.

A Let to Buy mortgage is a remortgage of an existing residential home that you already live in, where you take some equity out of it and use it to fund a new purchase. We treat the Let to Buy then as an investment transaction. So when the applicant moves out of the property into their new home, they let out the original home. The subsequent rent will support the mortgage on the new home. 

There are quite a few criteria and stress tests. Stress tests affect that rental figure in exactly the same way as it does for any other investment property or Buy to Let mortgage application. The maximum Loan to Value is typically around 75-80%.

Who is a Let to Buy mortgage for?

A Let to Buy became a way of getting out of the situation whereby clients wanted to buy a new property but couldn’t access the equity in their existing property through selling or other means. They became accidental landlords by virtue of the fact that they had to let out the existing place in order to buy their new home. 

Let to Buy these days is a more conscious decision. It’s about someone wanting to keep their property as an investment. Speak to your adviser about how the lender will view the transaction.

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We can assist you with the whole mortgage process, from buying your first home, to remortgaging, moving home, equity release, buy to let, specialist mortgages and more.

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

The Let to Buy mortgage criteria is that the property has to be marketable and mortgageable. It will get a valuation from the lender, but there will also be a rental assessment in the same way as we have rental assessment on a Buy to Let. 

Assuming the rent is enough to cover the payment due plus a reasonable amount of deposit to add to the new purchase, then that’s about as much criteria as we need. 

How much deposit do I need for a Let to Buy mortgage?

It’s not so much a deposit, rather the amount of equity that you’ve got in your existing property. Most Let to Buy mortgages will be 75% Loan to Value. A few are 80% Loan to Value, but the difference in interest rate is quite significant. I would encourage people to go with 75% or less. If you can get away with less, then do so because you don’t want to extend your borrowing to the maximum availability. Especially as Let to Buy tends to be people’s first venture into becoming landlords.

What are the pros and cons?

The pros and cons of a Let to Buy mortgage are not so much the mortgage product itself. It’s where it leaves you in terms of financial planning and life planning. You will be a landlord, so whether you intend to do that for a year or it’s a part of an overall strategy to acquire additional properties down the line, that is quite a significant decision. 

It does need to be something that’s thought through quite carefully. There is lots of legislation coming in about what it is to be a landlord – like EPC Ratings and stress tests, and it’s not the easiest job in the world. It’s always a good idea to consult with a broker – we are experts in this field.

Your home may be repossessed if you do not keep up with your mortgage repayments. 

The Financial Conduct Authority does not regulate some Let to Buy Mortgages.

Frequently Asked Questions

Call us today to discuss your borrowing potential and eligibility.

Typically, the mortgage process will take 2-6 weeks to reach approval.

A mortgage offer is usually valid for 6 months.

Please be aware, the process is currently taking longer due to Covid-19. Please see question ‘How has Covid-19 affected the mortgage market?’.

Whilst you are not required to take out a life cover, our job is to ensure your mortgage is affordable, no matter what. It may not be nice to talk about, but if something were to happen to you, you want to know your family and investment are safe.

We will advise on all the options available and provide a no obligation quote from our partner providers.

As with all insurance policies, conditions and exclusions will apply.

You may need a solicitor, depending on the circumstance. Your adviser will discuss this with you, and should you need one we can put you in touch with our trusted partners, or you can use you own.