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Let-to-Buy Mortgages

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Let to Buy Mortgage Advice

Let-to-Buy mortgages are useful if you want to move out of your current residential property and rent it out, usually so you can move into a new property. There are restrictions on most residential mortgage preventing them being let out. So you will need a buy-to-let mortgage for your existing property and a residential mortgage on your new home. Let to buy is a complex area and you should seek professional advice. All of our advisors are CeMap qualified and can guide you through the let to buy process.

What is a Let to Buy Mortgage?

Let to buy mortgages are a financial product for customers who are looking to borrow money to purchase a new property to move into while using there existing residence to get out. This product is an alternative to the popular and more well known Buy to Let option. The new mortgage lender will calculate the maximum you can borrow and will not take into account your existing mortgage as long as the rent covers the monthly mortgage payments. You may need a deposit for your let to buy mortgage although if you have equity in your current property this may be released to be used as a deposit.

Advantages of  let to buy

  • Allows you to rent out your current property and purchase in another area and keep your existing property as an investment
  • If you circumstances may change in the future it can be beneficial to keep your existing property for example if you are having to move due to your job
  • Your existing mortgage will be paid off by your tenants
  • It can be useful if you have little equity in your current house renting out for a few years will allow you to have more equity in the house
  • The rules are slightly different to buy to let mortgages which means you may be able to borrow a larger amount, this is good if you are looking to move to a bigger house.
  • Can be a good way into starting a property portfolio without having to find a house and refurbish before you can find tenant.
How much can I borrow?
For a let-to-buy, you can normally borrow up to 75% of the value of your current property as long as the rental income equates to 125% of the mortgage payment. The 75% can go toward the new property that you are buying and you would need to make up any shortfall with a residential mortgage.
Stamp Duty
As you already own a property, then you will have to pay extra stamp duty on properties you buy valued at over £40,000. These are the rates:-

  • 0% properties upto£40,000
  • 3% upto£125k
  • 5% £125K to £250k
  • 8% ££250K-£925k
  • 13% £925k-£1.5mil
  • 15% £1.5mil-+
Where do I get a let to buy mortgage
Many of the major lenders now provide let to buy mortgages. However, there are different criteria for lenders and it can be difficult getting the best deal without inside knowledge. Our expert advisors will be happy to help you source the best mortgage package for you.
What are the tax implications
There are two tax considerations, capital gains tax on the property at the point of sale and Income tax on the excess of rental income over allowable expenses.
Repaying the loan
On the whole let-to-buy mortgages are interest only. This keeps down the cost of owning a let-to-buy but leaves you with the problem of how to pay the loan off. One obvious solution is to sell the property before the end of the term of the mortgage. This is ok if property value continues to rise, however, there is always the chance the market will fall and the value of the property be less than the value of the property. Many people plan to use the 25% lump sum from their pension or save in a tax-efficient vehicle like an ISA.

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