What is Let to Buy?

A ‘let to buy’ is a mortgage transaction that involves the letting out of your current residential property on a buy to let mortgage in order that you can buy a new residential property – with or without a mortgage.

An example

  • Let’s assume your current house is worth £200,000 and you have a mortgage of £50,000.
  • If you want to rent this house out and at the same time release some of the spare equity to help fund the deposit on the new purchase, assuming a new purchase price of £225,000.
  • In this scenario you could potentially increase your current £50,000 mortgage to £140,000, therefore releasing £90,000 of equity to fund the deposit on the new home.  This mortgage would be classified as a buy to let mortgage with the mortgage lenders that allow the classification of ‘let to buy’.
  • The £90,000 equity that you have released is then used for the new residential purchase – again this would have to be with a lender that accepts ‘let to buy’ transactions.  NOT every lender does allow this and your mortgage broker will help you choose the right lender to suit your circumstances.

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The above example has obviously assumed that the appropriate income, rental and credit file of the applicant are acceptable to obtain both of these mortgages.

Are there any pitfalls?

Yes, there are many pitfalls or obstacles to be wary of when looking for a ‘let to buy’ mortgage, and a well established mortgage broker should know the ins and outs of the different mortgage lender’s criteria – Every lender has a different stance on ‘let to buy’ and here are a few examples of the differences in criteria:

  • Some lenders will limit the loan to value of a ‘let to buy’ mortgage application.  This limited loan to value may not be sufficient for your needs and requirements so your mortgage broker needs to ensure the correct lender is chosen.
  • Some lenders require your income to be sufficient to support both the outstanding mortgage and the new mortgage.
  • Some lenders may require a letter from the letting agent confirming the rental figure – the purpose of this is so that the lender can exclude the existing mortgage payment as a commitment to you when looking at overall affordability.
  • Some lenders will require proof that the new residential purchase is taking place and will require sight of the new mortgage offer before completing on the buy to let mortgage part of the ’let to buy’ deal.
  • Some lenders state in their criteria that they will accept ‘let to buy’ mortgage applications when in fact their criteria means in reality that they never will accept the deal – For example, one lender we know wants proof that your existing property has been let out for a period of at least 3 months before they will accept the mortgage for the new purchase – in reality this will never happen as a ‘let to buy’ is normally a simultaneous process where both mortgages complete at a similar time.

The best way forward

For any ‘let to buy’ mortgage we would strongly urge you to get assistance from an experienced mortgage broker who will be able to find the right lender for you and will be able to avoid the lenders rigid criteria allowing you to find the right deal in a timely manner.

If you would like to contact one of our mortgage brokers to discuss your situation then we will be happy to assist.

 

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