What is let to buy and how does it work?

News 16.07.2024

John Foster

A let to buy is one of the lesser known types of mortgages, but it could be just what you’re looking for. Read on to find out what a let to buy mortgage is, how it works and what the eligibility criteria are. Let to buy explained A let to buy mortgage enables you to

A let to buy is one of the lesser known types of mortgages, but it could be just what you’re looking for. Read on to find out what a let to buy mortgage is, how it works and what the eligibility criteria are.

Let to buy explained

A let to buy mortgage enables you to keep hold of your existing property to let to tenants and buy another property for you to move into. 

Let to buy can be a great option for couples who want to move in together while keeping hold of one or both of their existing properties. A let to buy mortgage can also be a suitable option for homeowners who are struggling to sell their current home but have already found their next home. Another reason why let to buy might be a good option is if you do not wish to sell your home for sentimental reasons or perhaps you have plans to move back into the property in the future.

How does a let to buy mortgage work?

When you take out a let to buy mortgage the mortgage on your existing property will switch to a let to buy and you’ll take out another residential mortgage on your new property purchase. The two mortgages will usually be taken out with the same lender, although it is possible to use two different lenders. In most cases both mortgages will need to complete at the same time.

Let to buy mortgage criteria

Each let to buy lender has their own set of eligibility criteria, generally speaking you may be eligible for a let to buy mortgage if:

  • You’re under the age of 75
  • You’re over the age of 25
  • You have a good credit score
  • You have at least 20-25% equity in your existing property*
  • The rental income covers the mortgage repayments by 125-145%

*Typically, the more equity you have in your property, the better the interest rates available to you.

Key considerations of a let to buy mortgage

A let to buy comes with a lot of responsibility. As a landlord you’ll need to adhere to legal requirements and financial responsibilities. You’ll also need to act in the interests of your tenants and maintain the property. For example, you’ll need to arrange a gas safety check every year and ensure you have a valid electrical safety report, among many other things. 

There may be periods where the property is vacant and you’re not earning any rental income but you’ll still need to make the mortgage repayments. And, of course, you’ll have two mortgages to pay; the let to buy and your new residential mortgage.

Another key consideration is that you’ll have to pay the stamp duty surcharge on your new purchase because you’ll own two properties. This means the stamp duty you’ll pay will be more than the amount you’d pay if you had just one property.

Lastly, you’ll need a deposit for your new property purchase. The deposit required is typically 10% of the purchase price. You might be able to use some of the equity in your existing property to fund the deposit – that’s if there is sufficient equity to cover both the deposit for the let to buy and the new residential mortgage.

Let to buy vs buy to let: What’s the difference?

A buy to let mortgage is taken out by borrowers who are specifically looking to make an investment purchase for the purpose of letting the property out. Whereas a let to buy mortgage is used when homeowners are looking to buy a new property to live in while keeping their existing property to let out. 

Applying for a let to buy mortgage

A let to buy is a more complex transaction than a standard residential mortgage as there are two mortgages involved which need to complete at the same time. What’s more, most let to buy mortgages are only available via a broker. 

A mortgage adviser can carefully assess your circumstances and make a suitable recommendation. They’ll also be on hand to answer any questions you may have and ensure that you understand your options. 

At Fosters Financial we specialise in let to buy mortgages, speak to us today about your mortgage requirements, we’d be happy to help! And check out our reviews to learn why our clients trust and recommend us.