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Let to buy mortgages
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What is a let-to-buy mortgage?
Let-to-buy actually refers to a set of circumstances where you have two mortgages at the same time, a standard residential mortgage and a buy-to-let mortgage, rather than a stand alone product.
This can be a helpful way to keep your existing home when you buy a new one. It’s a fairly niche area of lending, but there are lenders who will set up the entire let-to-buy mortgage package for you, giving you two mortgages with the same lender. It’s also possible to take a residential mortgage with one lender and buy-to-let with another.
The latter can be beneficial if more attractive rates are available using two separate lenders. However, due to the complexity of setting up let-to-buy mortgages, and the need to get the timings aligned perfectly, it's recommended to organise this under the guidance of an experienced mortgage broker.
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How does let-to-buy work?
When you plan to buy a new home, but want or need to keep your original property, let-to-buy allows you to remortgage your existing property onto a buy-to-let mortgage, whilst simultaneously taking out a residential mortgage to buy a new home.
Once you have the buy-to-let mortgage in place, you'll be able to accept tenants in your original home, so the rental income could pay for the residential mortgage taken out to buy your new home. Usually the equity built up in your current home will serve as a deposit for the new residential mortgage you take out.
As you are taking out two different types of mortgage, in some cases with more than one lender, you'll need to meet the criteria for both product to qualify for let-to-buy. As residential and buy-to-let mortgages are structured and calculated slightly differently, there will also be differences in how the lender decides the loan figure for each mortgage.
How to get a let-to-buy mortgage
Let-to-buy can be a very practical solution to multiple home buyer scenarios, including being stuck in a chain, however, it is a complicated lending process and certainly an area where seeking advice before you commit to anything is a good idea.
How much can I borrow with a let-to-buy mortgage?
As with any mortgage, how much you can borrow depends on your individual circumstances.
In this case, how the lender calculates your loans also differs between the two let-to-buy mortgage types:
Buy-to-let remortgage
When you remortgage your existing home onto a buy-to-let mortgage, the lender will base the size of your loan on the potential rental income it will earn. Some lenders may also be willing to look at your personal income alongside the rental income (or yield) generated from the property you let out. Although keep in mind that you'll also need to meet the affordability criteria of the other mortgage as well.
Residential mortgage for your new home
This will be calculated in a similar way to your mortgage on your current home, so will be based solely on your income and broader financial circumstances. The majority of lenders allow you to borrow between four and four and half times your unencumbered income (income minus outgoings). It’s worth bearing in mind that your buy-to-let mortgage repayments will be considered as an expense.
Who is a let-to-buy mortgage suitable for?
Basically, anybody who’s looking to move to a new home without selling their existing one could benefit from let-to-buy. Some popular examples of circumstances where this could be helpful are:
To save losing out on your newly found dream home if your current home hasn’t sold in time to make an offer on it
If your current home holds sentimental value but is no longer a good fit for your family
You’re moving in with a new partner, but you both have your own homes and neither is ready to let them go entirely
If you’re in a rush to move, perhaps due to a new job elsewhere, but your property is either not ready for sale, or the market is not optimum for achieving the price you want
If you need to move away for an extended period, but plan to return to your family home eventually
How is let-to-buy different to buy-to-let?
A buy-to-let mortgage is specific product, whereas let-to-buy is not an individual product type, but rather a set of circumstances where two mortgages, are taken out simultaneously for a specific purpose.
A buy-to-let mortgage is actually used as part of the let-to-buy mortgage set up, but can also be taken out individually by those who intend to be landlords. Let-to-buy, on the other hand, is designed to cater for those who didn’t originally intend to become landlords, but chose to do so in order to keep their existing home when they move elsewhere.
Lending criteria for a let-to-buy mortgage
As you are taking out two mortgages with let-to-buy, you'll need to meet the lending criteria for both. This is the case whether you use one or two lenders, as the mortgage products are different to each other, and therefore have different requirements.
Every lender has their own set of criteria for each of their products, so not all of these criteria will necessarily apply in every case, but they are typical of most lenders:
Buy-to-let criteria
You typically need a minimum equity requirement of between 25% and 40% in your current home, depending on the lender
Your property should be able to produce a rental income of 125%-145% of the mortgage repayments - this may need to be confirmed by an ARLA registered rental agent
There may be a minimum income requirement (usually between £15,000 and £25,000)
You usually need to provide evidence that you have an onward purchase (a new residential home to live in)
You may also need to show proof of your intent to let out your current home, and that it is not for sale
Buy-to-let mortgages are typically interest-only, which means that you'll need a viable repayment plan for the loan at the end of the mortgage term. Traditional landlords tend to sell the property to repay the loan, but this will likely defeat the point of your goal, so you may need to look at other options, such as investments or savings
Residential (onward purchase) criteria
You'll need a deposit, but 5% is usually sufficient for a residential mortgage, however, interest rates will be lower, the greater the deposit you can offer. Most people use the equity from the remortgage of their existing home for this purpose
Some lenders have a minimum income requirement (typically £20,000) but even if not, you'll need to meet the affordability criteria for the loan size required
As let-to-buy is fairly niche, fewer lenders are willing to accommodate bad credit applications, so you'll typically need a strong credit record
As you’re taking on two mortgages, lenders can be a bit stricter with the age limits of a residential mortgage that sits within a let-to-buy arrangement. Similarly to the buy-to-let mortgage, you will probably need to be between 25-75 years old to apply
Let-to-buy mortgage rates
As you have two separate mortgages, you'll be paying two separate rates of interest with let-to-buy. Buy-to-let rates tend to be higher than residential, however, neither of the mortgages should be charged at a higher level of interest than if you took them out individually.
You may also need to go through a broker to access some of the lenders in this field, as there are some specialist lenders who don’t deal directly with the public.
Of course, as with any mortgage product, the actual rates you are offered for let-to-buy will depend on your personal circumstances, the type of deal you go for (fixed-rate, tracker rate or discount rate) and the chosen lender.
Advantages and disadvantages of let-to-buy mortgages
Let-to-buy makes the process of buying a new residential home whilst keeping your existing home possible
It removes any urgency to sell your home if now is not the right time, which could save you from losing out on the sale price you want
The financial gains from owning more than one property could be beneficial in the long run, especially if property prices rise
You will be responsible for repaying two mortgages, which may become difficult if you don’t have tenants in the rental property at all times
If the housing market declines, you could potentially end up in negative equity on two properties
Second homes incur an additional stamp duty charge - If you sell the rental property within three years of taking out a let-to-buy mortgage, however, you can reclaim the additional stamp duty
Let-to-buy FAQs
Uswitch is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions. Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website. Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH. Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215) Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH, and head office is WeWork No. 1 Spinningfields, Quay Street, Manchester, M3 3JE. To contact Mojo by phone, please call 0333 123 0012.