Can you switch from a buy to let mortgage to a residential mortgage?

Yes you can, this is a common scenario for those who have been letting out their home due to living abroad, for example, but want to return to the UK. Most lenders will allow you to perform a product transfer, which is simply remortgaging onto another of their products that is better suited to your needs, in this case a residential mortgage. Not all lenders will allow this type of change, however, so you may have to look into remortgaging with another lender who is happy to offer a residential mortgage on a property that is currently buy-to-let. You may need to agree to switch to a repayment mortgage, if you are currently paying on an interest-only basis, however.

Can you have two residential mortgages?

Theoretically you can have as many residential mortgages as you can afford, however, some lenders will not allow you to have more than a certain level of borrowing with them. Often people will therefore use different lenders to buy their second or subsequent homes. It’s also worth noting that stamp duty is charged at an additional rate of 3% on every property you own beyond your first residential home.

How can you get a consent to let for your residential mortgage?

A consent to let allows you to rent out a residential home for a short period of time, typically 6-24 months, without the need to remortgage onto a buy-to-let mortgage product. They can usually be obtained fairly quickly and easily from your lender, you can read more about consent to let here.

Will moving house affect my credit rating?

It can do, although this is more likely if you move house regularly, as living in one place for a long time is seen as a sign of stability. It can also take time to be reinstated on the electoral roll at your new address, meaning creditors can’t use the list to verify your identity for a short time. Another way that moving house could potentially impact your credit file is if you make multiple applications for a mortgage before being accepted. This is because every lender will carry out a credit search and multiple searches over a short period of time can reduce your score. A mortgage broker can help you to avoid the latter by ensuring you approach a lender whose criteria you are most likely to meet.

Will my repayments change when I move home?

It depends on whether you need to borrow more (or less) money when you move into your new home. If you’re porting your mortgage on the same terms, your repayments will usually stay the same, but it’s not very common to find a new home that is valued at the exact same cost as your current one, so it’s a good idea to expect at least some change in your repayments.

Do I need a deposit when moving home?

When you move house, the equity in your current home (what you own, versus the value of the property) can be used as the deposit for any new mortgage you take out. This means you don’t typically have to save up a deposit as you would if you were a first-time buyer. You can improve your LTV (loan to value) ratio by using additional savings to boost your deposit, however, and you may also need to use a cash deposit alongside your equity if it is not sufficient to meet the lender’s minimum LTV requirements.

Should I get an agreement in principle when moving home?

An agreement in principle likely won’t be as important when moving house as it is when you’re buying your first house, as you are showing serious intent as a buyer simply by having listed your own property for sale. It can, however, be helpful to know what sort of loan you could get if you’re upsizing to a new home, as this will help save the disappointment of making an offer on a house that you cannot realistically afford.

What happens if I don’t intend to move house immediately?

It depends whether you are porting your mortgage or taking out a new home mover mortgage. If you're porting, some lenders will allow you to porting within a designated time frame, although this is typically 30 days. If you think it's going to take longer to sell your existing home then is may be easier to opt for a new mortgage. This way a mutually agreeable completion date can be arranged.

What happens if I need a larger mortgage?

You can sometimes increase your borrowing when you port your mortgage, although you will need to meet the lending criteria for the larger loan. Some lenders will want you to take the increased loan as a separate mortgage, however, which means that you could end up with two mortgages at two different rates, with the same lender. In this case it may be easier to remortgage onto a new home mover product. This way you can apply for the additional borrowing and repay your existing mortgage with one mortgage. Of course, you will still need to meet the affordability criteria with the new lender.

Is let-to-buy a good idea?

It depends on your personal circumstances. Let-to-buy can be really beneficial for people in specific circumstances, such as those in a property chain and unable to sell their home, or those wanting to move home, but keep their original one.

Will I have to pay stamp duty if I let-to-buy?

Yes, you will have to pay stamp duty on your new residential property, and as it will be your second home, this will be charged at the additional rate of 3% above standard stamp duty. If you sell your original home within three years, however, you can claim the second home stamp duty back from HMRC.

Can I remortgage if I have a let-to-buy agreement?

Yes you can, although you’ll need to be aware that the pool of lenders available is fairly small, so there will be less choice than if you simply remortgaged a residential or buy-to-let property in isolation. You should consider the costs involved with remortgaging two deals at a time, however, as in some cases, this will be more expensive than staying with your original let-to-buy set up.

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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 it being a stand alone product.

This can be a really 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 can offer to set up the entire let-to-buy mortgage package for you, so you would have 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 sometimes be beneficial if you can find more attractive rates with two separate lenders, however, due to the complexity of setting up let-to-buy and the need to get the timings aligned perfectly, it would probably be best to do 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 will be able to accept tenants in your original home, meaning you can use the rental income to pay for the residential mortgage you take 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, it’s important to understand that you will need to meet the criteria for both products in order 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 upon 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 homebuyer 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 on a let-to-buy mortgage?

As with any mortgage or loan, the amount you can borrow will depend on your individual circumstances, however, the way in which the lender calculates your loan will vary between the two mortgages:

Buy-to-let remortgage

When you remortgage your current home onto a buy-to-let mortgage, the lender will base the size of your loan on the potential rental income it will earn. In some cases 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 bear in mind that you will 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
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 actually used within the let-to-buy arrangement, but can also be taken individually. Traditionally a buy-to-let mortgage is used by those buyers who intend to be landlords and are investing in property specifically to rent it out and make a profit.

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 so that their home will pay for itself and they therefore don’t need to sell it in order to move elsewhere.

Lending criteria for a let-to-buy mortgage

As you are taking out two mortgages with let-to-buy, you will 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 will necessarily apply in every case, but they are typical of most lenders:

Buy-to-let criteria

You will typically need a minimum equity requirement in your current home of between 25% and 40%, depending on the lender
There may be a minimum income requirement (usually between £15,000 and £25,000)
Your property will need to 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
You will 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
There may be slightly more restrictive age requirements, with many lenders only accepting applicants between 25 and 75 years of age
Buy-to-let mortgages are typically interest-only, which means that you will 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 will need a deposit, but 5% is usually sufficient for a residential mortgage, however, interest rates will be higher with a low deposit, so the more you can offer, the better. Many people use some of the equity from the remortgage of their existing home for this purpose
Some lenders will have a minimum income requirement (typically £20,000) but even if not, you will need to meet the affordability criteria for the loan size required
As let-to-buy is fairly niche, there will be fewer lenders willing to accommodate bad credit for this purpose, so you will 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

Mortgage rates for let-to-buy mortgages

You will be paying two separate rates of interest with let-to-buy, as you will have two separate mortgages. 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 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 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

Disadvantages of let-to-buy mortgages

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

You will need around 25-45% for the buy-to-let element of the arrangement, and a minimum of 5-10% (depending on the lender) for the residential mortgage. Some people are able to cover both of these deposits with the equity in their existing home, however.

That said, offering a larger deposit will give you access to better interest rates, so it’s better to offer more than the minimum amount required, if possible.

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