Let-to-Buy Mortgage Guide
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So, you’ve found your dream house and had an offer accepted. Congratulations! If you’ve yet to find a buyer for your current home, there’s no need to despair just yet. It might be possible to secure your new property without having to rely on selling your existing one. That’s all down to something called a let-to-buy mortgage.
What is a let-to-buy mortgage?
Not to be confused with a buy-to-let mortgage, a let-to-buy is an ideal solution if you’re struggling to find a buyer for your home and are in a hurry to move. This sort of mortgage involves having 2 mortgages – a buy-to-let mortgage and a standard residential mortgage. You’ll rent out your original property and use your new one as your primary residence.
How does let-to-buy work?
For a let-to-buy mortgage, you’ll remortgage your current home and release some of its equity. By equity, we mean the proportion of the house you actually own. For example, if your house is worth £250,000 and your mortgage is worth £150,000, your equity is £100,000. With a let-to-buy deal, you can use your equity to put down a deposit on a new house. Your original property will then be rented out to paying tenants.
Put simply, instead of selling one property and buying another, you’ll be able to keep both with a let-to-buy mortgage. Your initial property will be remortgaged with a buy-to-let mortgage and put on the rental market. At the same time, you’ll move into your new home with a standard mortgage (from the same lender). The rent money you make from your old place will help pay off your mortgages for both properties.
Let-to-buy mortgage benefits
One of the most significant benefits of a let-to-buy mortgage is that you’ll be able to buy a property you love without having to sell your current home. It can take a lot of pressure off being in a property chain as you won’t need to rush to find a buyer. You can hold off until an excellent offer is submitted and ensure you get what your home is worth.
Let-to-buy mortgages are a popular option for couples or friends who both own properties but don’t want to sell either of them. You could both move into one and rent out the other, giving you a safety net in case, later down the line, you decide to live separately again. It might additionally be an attractive option if you have a new job elsewhere in the country, which you know will only last for a few years. You can let out your home and then buy a new one to live in for the duration of your job contract.
Another reason you may want to hold on to your original home a little bit longer is the housing market. If property prices have fallen, applying for a let-to-buy mortgage will allow you to wait to sell your first property when the market bounces back. In the meantime, you can still buy another house and move in.
Downsides of let-to-buy mortgages
As with any type of mortgage, a let-to-buy has disadvantages. Namely, it’ll mean you have not 1 but 2 sets of mortgage repayments to meet every month. You’ll need to rent out your old home immediately or risk money from your savings or income going straight to your mortgage lender.
What’s more, if you need to sell one or both properties quickly one day, there’s no guarantee either will have gone up in value. Consequently, you could end up losing money.
It’s worth noting that let-to-buy mortgage deals usually don’t have the same interest rates as other mortgages. There’s also the issue of second property stamp duty, which you’ll find more details about later in this guide.
Who can apply for a let-to-buy mortgage?
Let-to-buy mortgages aren’t an option for everyone. Before you even consider one, you’ll need to first make sure you’ll be able to afford 2 lots of mortgage payments every month. You’ll also need to have enough equity in your first home to successfully remortgage it.
When it comes to applying for a let-to-buy mortgage, you’ll want to bear in mind the following:
The minimum loan to value (LTV) with a buy-to-let mortgage is usually 75%. This means you’ll only be able to borrow 75% of your first property’s worth from a bank or lender; you’ll need to provide the rest as a deposit
There is often a maximum age of 70 (sometimes less) for applying for let-to-buy mortgages
You must be able to provide evidence that you’re purchasing another house (your second property) to the bank or lender who is offering you a let-to-buy
You cannot be in the process of putting your initial property up for sale – it must be ready for renting
Having 2 mortgages puts a lot of pressure on your finances, so you must make sure you can afford to pay off both repayments every month
A step-by-step guide to getting a let-to-buy mortgage
If you’re still not 100% sure how the let to buy process works, we’ve laid it out in our simple guide below:
1. Remortgage your first property with a let-to-buy deal
Once you’ve found and put an offer on a second property, you’ll be able to approach a lender to remortgage your first. Not every bank will offer these, so shop around to find one that does. To make it easier, why not compare let-to-buy mortgages on our compare mortgages page?
Once you’ve found a good deal, you’ll remortgage your first property under a buy-to-let mortgage. As part of the let-to-buy loan, the lender will let you borrow more money from your mortgage’s equity to cover the cost of the deposit on your second property.
2. Make sure the rental income covers the remortgage repayments
It’s currently a requirement of any buy-to-let mortgage that the rental income from the property should be more than your mortgage payments.
To find out the potential rental income from your property, you could compare it to similar rental properties in the area. A local letting agent should also be able to give you a good idea of what you might expect to earn each month from letting it out.
3. Take out a standard mortgage for the new property
Suppose you’ve got a buy-to-let mortgage for your first property and have released enough equity to put down a deposit on the second. Next, you’ll need to get a residential mortgage. To make things easier, this will be from the same lender.
You’ll then be able to complete on your new home and move in, all the while making money off your original property through rent.
Stamp duty with let-to-buy mortgages
As of April 2016, second properties are charged an additional stamp duty tax. Depending on which country in the UK you’re buying in, stamp duty may be called Land and Buildings Transaction Tax (Scotland) or Land Transaction Tax (Wales).
Going down the let-to-buy mortgage route will involve owning 2 properties, which means you’ll probably need to pay this extra tax. The second property stamp duty rates differ depending on where you’re buying.
If you’re buying an additional property in England or NI, the second home stamp duty is as follows:
3% for properties worth up to £250,000
8% for properties between £250,001 and £925,000
13% for properties between £925,001 and £1.5million
15% for properties worth over £1.5million
For second homes purchased in Scotland, the Land and Buildings Transaction Tax will be:
4% for properties worth up to £145,000
6% for properties between £145,001 and £250,000
9% for properties between £250,001 and £325,000
14% for properties between £325,001 and £750,000
16% for properties worth over £750,000
And if it’s Wales where you’re hoping to buy your second property, expect to pay the following in Land Transaction Tax:
4% for properties up to £180,000
7.5% for properties between £180,001 and £250,000
9% for properties between £250,001 and £400,000
11.5% for properties between £400,001 and £750,000
14% for properties between £750,001 and £1.5m
16% for properties over £1.5m
That might not sound like a considerable amount, but let’s put it into perspective. If a house you’re buying in England or NI is worth £250,000, your standard stamp duty will typically be 2% on anything over £125,000.
You’ll then pay an additional 3% of the property’s value on top of that, taking the total to £10,000.
With the current stamp duty holiday in England and NI set to last until 30 June 2021, you’ll only pay £7,500.
There are certain circumstances where you won’t need to pay this extra property stamp duty. What’s more, if you sell your second property within three years of buying your second, you’ll be able to claim back the extra stamp duty from the government.
To work out accurate stamp duty amounts for second properties in England, NI, Wales or Scotland, try using our stamp duty calculator.
Finding a let-to-buy deal
Not all banks and lenders will offer let to buy deals, so you’ll need to do your research. Some banks will also prefer to negotiate through a mortgage broker instead of you directly. As let-to-buy mortgages can be pretty complicated, it’s worth speaking to a mortgage broker for guidance.
What other options do I have?
If you haven’t got enough equity in your first property to remortgage as a let-to-buy, you might want to consider alternative options.
Those not in a hurry to buy a second home (or yet to find the perfect place) could simply remortgage their initial property as a standard buy-to-let. Homeowners can earn money from their rental income and move into rental accommodation for a period. This provides the freedom to take your time looking for a new home or get to know an area before you buy, especially if you’ve moved from another part of the country.
You might also be able to ask your lender if you can rent out your first property without having to remortgage it onto a buy-to-let mortgage. This is called consent-to-let. It might be possible with a standard residential mortgage depending on your bank or lender.
For more information on getting a mortgage for a property, you intend to rent out, look at our information-packed buy to let page. You’ll also be able to work out how much you’ll be able to borrow using our mortgage calculator.