Let to Buy occurs when a mortgage applicant remortgages their existing residential property on a rental basis and simultaneously completes a residential purchase. Applicants often raise capital on the remortgage in order to put down a deposit on the onward purchase. The reason why Let to Buy exists is because lenders often have criteria stating that an applicant must own a residential property to qualify for a rental mortgage (known as a buy to let mortgage). With Let-to-Buy, the lender knows that the applicant will own a residential property on completion, meaning that their criteria is met. Aside from this, the general lending criteria is similar to separate transactions for a buy to let remortgage and a residential purchase.
A Let to Buy transaction is usually a good idea for applicants looking to retain their existing property whilst simultaneously moving home. By changing their existing residence to a rental property, they can generate an additional income stream whilst using the property’s equity to finance a new residential purchase. However, a downside to Let to Buy Transactions is the Stamp Duty Land Tax Payable.
There are many reasons why someone might wish to take out a let-to-buy mortgage. Most applicants wish to retain their present property to benefit from the rental income generated and to avoid the hassle of a sale. As selling a property can be a long and drawn out process, spanning over many months, a let-to-buy remortgage of the property can significantly improve the time for completion of the new property purchase. In a recessionary market where property sales can take over 6 months to complete, a let-to-buy transaction can be attractive for those looking for a quick purchase.
Most lenders allow let-to-buy transactions as long as they offer both Buy to Let and Residential mortgages. There are a number of lenders that are more lenient on bad credit. However, it does depend on the degree of the bad credit. If you have significant and recent bad credit, it may be difficult to acquire a mortgage in any scenario, let alone a let to buy mortgage. A whole of market mortgage broker, like ourselves at Boon Brokers, will be able to research the market and identify the most suitable lender for your requirements. With our criteria search system, we can quickly assess whether a lender is available for your bad credit.
The obvious alternative to using a let to buy mortgage is to sell your property to raise funds for the onward purchase. As mentioned previously, property sales can take many months to complete which results in a far slower transaction process. However, by selling your property instead to raise funds, you can realise all of the equity and not worry about paying the additional rate of Stamp Duty Land Tax for the onward purchase. If you are adamant on retaining your existing property, but are not looking to purchase a residential immediately, you can explore the option of a standard Buy to Let Remortgage on the property. However, bear in mind that you will be unable to live in the property as this would break the mortgage conditions. When you ultimately find a residential property to purchase, this will be processed as a standalone transaction.
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