What is a Let to Buy Mortgage?

You have probably heard about a Buy to Let mortgage, but have you heard about Let to Buy? In certain circumstances a Let to Buy mortgage can be ideal and help you buy a new residence while retaining your existing property.

Let to Buy mortgages can be complicated though and it will mean managing two mortgage products simultaneously. This is similar if you have an existing residential mortgage and want to purchase an additional Buy to Let – just in reverse. Your Let to Buy will allow you to rent out your existing home and move into a new residential property.

Let’s explore Let to Buy mortgages in detail and understand the advantages and disadvantages of borrowing in this way.

How Does a Let to Buy Mortgage Work?

With a Let to Buy mortgage you are essentially converting your initial residential mortgage to a Buy to Let and then purchasing a new home on a residential mortgage.

They can be extremely advantageous for several reasons:

• Your existing property may not be big enough and you need to buy a new home
• You may wish to purchase a more expensive property as your home and retain your existing property for rental income
• You understand your existing property like the back of your hand, making becoming a landlord easier

Ultimately, whether you decide on a Buy to Let or a Let to Buy will depend on your personal situation. There are situations where Let to Buy will be unsuitable, it is best to always seek advice from a mortgage broker, like Boon Brokers, when considering this product.

Lending Criteria

The lending criteria is similar for Let to Buy mortgages as they are to Buy to Let mortgages.

You will need to pass a lender’s rental threshold or stress test to make sure the amount you can generate in rent comfortably outweighs your mortgage payment.

You will also need to ensure there is enough equity in the property to meet the lender’s Loan-to-Value criteria. Typically, lenders will expect a minimum of 25% of the property value as equity on completion. This differs to residential mortgages, which normally have a minimum deposit/ equity requirement of 5%.

This is where Let to Buy mortgages can be advantageous, especially if you have had a residential mortgage on the property for a long time and have built up a large equity sum.

The Residential Mortgage Aspect

Buy to Let mortgages can be standalone products and you can purchase a property on a Buy to Let basis without ever owning a property before.
However, Let to Buy converts your existing mortgage to a Let to Buy remortgage and you would need to take a residential mortgage for your new property.

As such, you will also need to pass a lender’s affordability criteria for your new residential mortgage.

Most lenders allow you to borrow 4.5 times your annual income. Some lenders will allow you to use rental or investment income toward your affordability while others will not.

Difference Between Let to Buy and Buy to Let

If you want to rent out your residential property and do not need to buy a new home, you can convert your mortgage to a Buy to Let mortgage.

This is common in cases where homeowners have another home elsewhere such as moving back into a parent’s property or renting in a cheaper area elsewhere.

In most cases, people need to secure a new home when they rent out their existing property and this is where Let to Buy shines. A key reason why Let-to-Buy exists is because of most lenders’ home ownership criteria. Most lenders require applicants to own a residential property before they can apply for a buy-to-let mortgage. With Let-to-Buy, a buy to let and residential property will be owned simultaneously on completion, which meets criteria.

You can convert your existing mortgage to a Buy to Let and take a residential mortgage product on your new home.

The only material difference between a Buy to Let mortgage and a Let to Buy is the necessity for an additional residential mortgage with Let to Buy that you may not have if you are wanting to use a Buy to Let mortgage.

Benefits of Let to Buy

The biggest benefits of Let to Buy are retaining your existing residential property and generating rental income from it.

There are plenty of life situations where a Let to Buy will be ideal. For example, if you purchased a one-bedroom flat as a young couple but now want to start a family and move to a larger house.

You may also find that lending criteria restrictions make it impossible for you to obtain a Buy to Let in your desired area, but your existing residence is best suited for renting out.

The situations where Let to Buy are beneficial are varied and there is plenty of nuance involved in the mortgage advice around Let to Buy mortgages.

Drawbacks of Let to Buy

Let to Buy mortgages are more complicated than a straightforward Residential or Buy to Let mortgage.

Borrowers are at greater risk of overextending themselves financially by having two mortgage products and lenders will be stricter in their assessments around affordability.

If you are purchasing a larger or more expensive property, you may find it difficult to pass the affordability assessment on your residential mortgage. This can be compounded further if the lender you choose does not accept all forms of income. Most borrowers expect rental and investment income to be taken into account on affordability calculations, but this is not always the case.

Let to Buy mortgages are also rarer than Buy to Let and Residential mortgages. Some brokers will go through their entire career without ever arranging a Let to Buy mortgage. It is important that you seek mortgage advice from a broker with experience in Let to Buy mortgages to best understand the products available and source the cheapest products.

Speak to a Mortgage Broker

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers is an expert in Let to Buy mortgages and provides fee free mortgage advice.

Book your no obligation Let to Buy mortgage consultation with Boon Brokers today.