How Long Does It Take to Get a Let-to-Buy Mortgage?
You may be familiar with Buy to Let mortgages and even be considering this product currently. Did you know there is an alternative product called Let-to-Buy that allows you to purchase a new residence whilst simultaneously letting your current property?
This article explains Let-to-Buy mortgages and why you might want to consider them. There are strict eligibility criteria for Let-to-Buy mortgages but if you meet them, they can be valuable mortgage products.
Let’s explore Let-to-Buy mortgages in detail.
What is a Let-to-Buy Mortgage?
A Let to Buy mortgage is different to a buy to let mortgage. With a Let to Buy, you rent out your existing property and buy a new property to live in simultaneously.
In short, you will be remortgaging your existing property onto a Buy to Let mortgage and be purchasing a new property on a residential mortgage.
Unlike a Buy to Let purchase or remortgage, which involves just one transaction, Let to Buy is a more complicated financial arrangement. This is mainly attributed to two reasons:
- Managing two mortgage products
- Becoming a landlord and ensuring your current property meets rental legislation
Let to Buy mortgages are particularly useful if you:
- Are in a rush to move house and do not have time to sell your existing property
- Are unable to sell your current property for any reason
- Are intending to buy a property with a new partner but wish to retain sole ownership of your existing property
- You need to relocate and intend to return to the first property in the future
How Are Let-to-Buy Mortgages Calculated?
Two factors are considered by lenders with Let to Buy mortgages.
- Affordability calculations for your new residential mortgage,
- Rental cover threshold met on your existing property.
In this respect the Let to Buy is straightforward and you will just need to satisfy the same requirements as you would if you obtained these mortgages in a traditional way.
The challenging aspect of a Let to Buy is switching your residential mortgage to a Buy to Let product and arranging a new residential mortgage in time to make your planned move.
This is opportune for borrowers with Early Repayment Charges (ERCs) who wish to save paying this additional cost for redeeming the mortgage. In some cases, this will be impossible to do, and you may need to source another lender.
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Because the actual switch over is complex with a lot of moving parts, your broker may need to source a specific Let to Buy mortgage. These mortgages fulfil all aspects of the transition and allow you to move into a new property and rent your existing property seamlessly.
There are eligibility criteria for Let to Buy mortgages. Typically, you will be expected to:
- Limit your borrowing to 75% of your current property’s value (with some lenders allowing 80%)
- Demonstrate you will be able to generate higher rent than your mortgage payment (the lender’s valuer will usually make a rental assessment)
- Prove you are buying a new property to reside in at the same time as switching your existing property to a Buy to Let
- Use the same conveyancers/solicitor for both transactions
- Be under the maximum age of 70 (some lenders have higher maximum age criteria)
How Much Deposit Do You Need?
To complete a Let to Buy transaction you will need to ensure that you have sufficient equity/deposit in both properties on completion.
In most Let to Buy cases, the remortgage loan-to-value requirement is taken care of by existing equity you hold in the property. Depending on the minimum equity level of your chosen Buy to Let lender you may need to increase your equity by making a financial contribution from personal sources.
You will then need the deposit required for your new residential mortgage. Lenders require a minimum deposit of 5% of the purchase price. However, depending on your mortgage affordability, a greater deposit may be required.
It is important to consider cost vs benefit when assessing the amount of deposit, you put down on a mortgage. For example, a residential mortgage with a 10% deposit will typically have a much lower interest rate than a 5% deposit mortgage. In this scenario you may offset any money you put down on a higher deposit with ongoing monthly savings.
Can I Let to Buy with the Same Lender?
Yes, you can secure both mortgages with the same lender if the lender offers Let to Buy and residential mortgage products.
In many cases, it may be better to source a Buy to Let mortgage with a separate lender from your new residential mortgage.
This is because Buy to Let mortgage products are different to residential mortgage products and some lenders are very competitive on one product over the other.
By sourcing more than one lender, you may find the savings over the mortgage terms to be significant. You should strongly consider using a whole of market broker, like Boon Brokers, to source the market on your behalf. If the broker is reputable and fee-free, there will be no expense to you and you will have access to a professional service.
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Alternatives to Let-to-Buy Mortgages
If you are seeking to retain your first property and let it out there are very few alternatives to Let to Buy.
As mentioned previously, you may be able to convert your existing mortgage product or obtain consent to let from your mortgage provider. The latter is rare, but if achieved is normally more favourable than remortgaging onto a Buy to Let as you avoid jumping through the hoops associated with a Buy to Let mortgage application.
The other alternative, if you have enough capital, is to settle your existing mortgage in full and then let it out on your own terms without the need for a mortgage.
Speak to a Let-to-Buy Mortgage Broker
Let to Buy mortgages are intricate and often time dependent in nature. This is the reason why Let to Buy providers require you to use the same solicitor for both mortgages so they can ensure completion occurs exactly when it needs to.
A Let to Buy mortgage broker can assist you and make the process much simpler by comparing the market, providing bespoke advice, and helping you save money.
Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice.
Contact Boon Brokers and book your Let to Buy mortgage consultation today.