Reasons to Consider Let-to-Buy

There are several reasons why you might be considering a let-to-buy arrangement. Perhaps the most common motivation is the desire to leverage the equity built up in your current home to facilitate a move to a new property while retaining the existing home as a long-term investment. Let-to-buy can also be advantageous in various other situations:

• Urgent Need to Move: If you need to move quickly and cannot afford to wait for your current property to sell, let-to-buy offers a viable solution.
• Market Challenges: In a sluggish market where selling your home is difficult, let-to-buy allows you to purchase a new property while renting out your existing one.
• Partnership Investments: If you are purchasing a property with a partner but wish to maintain ownership of your current home, let-to-buy can accommodate this.
• Temporary Relocation: If you are relocating for a few years with plans to return, let-to-buy enables you to keep your home while moving to a new area.

How Let-to-Buy Differs from Buy-to-Let

Although they sound similar, let-to-buy and buy-to-let are quite different. With buy-to-let, you purchase a property specifically to rent it out. In contrast, let-to-buy involves buying a new home for yourself while renting out your current property.

Let-to-Buy Mortgages

One of the significant challenges of let-to-buy is that you cannot simply rent out your current home and buy another without adjusting your mortgage. Operating a rental property with a residential mortgage breaches the terms of your home loan. Therefore, you'll need to convert your residential mortgage to a buy-to-let deal or obtain consent to let. This process can be complex, as buy-to-let mortgages are generally interest-only and have higher rates than residential mortgages.

Switching to a Buy-to-Let Mortgage

If your existing mortgage lender allows you to switch to a buy-to-let deal, this will involve reassessing your finances based on their buy-to-let criteria. If switching is not an option with your current lender, you might consider remortgaging with another lender. However, this could incur early repayment charges if you are still within the introductory fixed term of your current mortgage.

Some lenders offer specialist let-to-buy mortgages to simplify this process, taking some of the stress out of managing multiple transactions.

Let-to-Buy Mortgage Lending Criteria

When switching to a buy-to-let mortgage, your eligibility will be based on the rental income potential of the property you intend to let out, rather than your personal income. Specialist let-to-buy mortgages typically require the following:

• Borrowing Limit: Usually up to 75%-80% of the value of your current home. If you plan to release equity, this must be factored into your calculations.
• Rental Income: Most lenders require that the rental income covers around 145% of the monthly mortgage repayments.
• Concurrent Transactions: Proof that you are purchasing a new home while switching your mortgage. Lenders may request a copy of your new home’s mortgage offer.
• Legal Representation: Some lenders may require you to use the same solicitor for both transactions.
• Age Restrictions: Many lenders set a maximum age limit, typically between 70 and 75 years.

The Role of a Mortgage Broker in Let-to-Buy

Given the complexity of let-to-buy arrangements, it is highly recommended to seek advice from a whole-of-market mortgage broker. A broker can help you navigate the process, find the right buy-to-let and residential mortgages, and manage both transactions to ensure they are completed simultaneously. Additionally, many buy-to-let mortgages are only available through brokers, offering you access to deals that might not be available directly from lenders.

Handling Multiple Mortgages

With let-to-buy, you could end up dealing with multiple lenders, which can complicate the transaction process. Some lenders offer the convenience of managing both your buy-to-let and residential mortgages. For example, Nationwide’s buy-to-let arm, The Mortgage Works, allows you to switch your residential mortgage to a buy-to-let deal while taking out a new residential mortgage with Nationwide. Consulting a mortgage broker can help identify such opportunities.

Let-to-Buy and Consent to Let

If you only plan to let your property for a short period, obtaining consent to let from your lender might be an alternative to switching to a buy-to-let mortgage. This depends on your lender's policies and your reasons for letting the property. For example, temporary consent might be granted if you are relocating for work for a year. However, if you are buying a new home for yourself, the lender may insist on switching to a buy-to-let mortgage.

Becoming a Landlord with a Let-to-Buy Mortgage

A significant aspect of let-to-buy is the responsibility of becoming a landlord. This involves tasks such as finding tenants and managing property maintenance. Here are some key considerations:

• Buy-to-Let Stamp Duty: When purchasing your new home, you’ll need to pay a 3% buy-to-let stamp duty surcharge since you are technically buying a second home. This surcharge can add to your upfront costs, so it’s crucial to budget accordingly. If you sell your original property within three years, you can claim back the difference between what you paid and the standard home mover rates.

Let-to-buy offers a strategic approach to managing property investments and facilitating moves. With careful planning and professional guidance, it can be a beneficial option for many homeowners. If you need further advice or assistance, our team of experts is ready to help you navigate the let-to-buy process.