More homeowners across the United Kingdom than ever before are considering branching out with a Let to Buy investment. But what exactly does ‘Let to Buy’ mean, and how does it differ from a Buy to Let investment?
In this brief introductory guide, we will be taking a look at the basics of Let to Buy, along with the options available for financing a Let to Buy investment.
What Is Let To Buy?
The term ‘Let to Buy’ refers to when a homeowner rents out the property they currently live in and moves to a new home. This subsequently means paying off two mortgages concurrently – the remaining balance on your current home and the mortgage you will be taking out on your new home.
The process involves converting your current mortgage into a Buy to Let mortgage, so as to let your current home out to tenants. At the same time, an entirely new residential mortgage is taken out to purchase your new property.
When Is Let To Buy Worth Considering?
The primary reason homeowners consider Let to Buy is to take ownership of a second property. With a Let to Buy mortgage, the tenants you let your property out to cover its outstanding mortgage payments on your behalf, while you begin paying off the mortgage on your new home.
Other common reasons for considering Let to Buy include the following:
- Difficulties selling your home the conventional way
- Inability to get an acceptable asking price for your property
- Urgent relocation without the time to sell your home
- The intention to move but then move back at a later date
- Unwillingness to sell your current home
If you wish to retain your current property and take ownership of a new home, Let to Buy may be worth considering.
How Is Let To Buy Different From Buy To Let?
Both Let to Buy and Buy to Let involve taking ownership of a second property. The difference being that with Buy to Let, you purchase a second property with the intention of letting that property out to tenants.
With Let to Buy, you let your current property out to tenants and buy a new home to live in.
Let To Buy Mortgages
The most complex and time-consuming aspect of Let to Buy is making the necessary mortgage arrangements. Under the terms of your existing home loan, it is unlikely you will be able to let your current property out to tenants, without breaching your contractual obligations.
With Let to Buy, you will need to have your existing residential mortgage converted into a Buy to Let mortgage, which may result in additional charges and higher interest rates. The terms and conditions of your mortgage agreement will also change significantly, upon switching to a Buy to Let mortgage.
Switching To A Buy To Let Mortgage
Converting your existing mortgage to a Buy to Let mortgage will involve a complete reassessment of your financial situation by your lender. If your current lender refuses your request to switch, you could take your business to a new lender with the help of a broker.
Working with a lender that is an expert in Let to Buy is advisable where possible, and could save you time, effort, and money.
Let To Buy Mortgage Lending Criteria
Various criteria will be considered when assessing your Let to Buy mortgage application, based primarily on the amount of money your current property will generate as rental income.
Lending criteria vary significantly from one lender to the next, though will usually include the following requirements:
- The ability to borrow no more than 75% to 80% LTV on your current property
- Proof of rental income of around 145% of your home’s mortgage payments
- Evidence of purchasing a new property when switching to a LTB mortgage
- An upper age limit for the primary applicant of 70 to 75 years
Some Let to Buy specialists are more flexible than others, so be sure to speak to an established broker if concerned about your eligibility.
Is It Necessary To Work With A Let To Buy Broker?
Working with an established Let to Buy broker is not mandatory but could nonetheless save you a great deal of time and money. Let to Buy transactions can be complex, time-consuming and costly, just as finding the best lender to suit your requirements can be challenging.
As the vast majority of Let to Buy brokers offer their services free of charge for their clients, it is always worth consulting with a broker at the earliest possible stage.
Should I Use The Same Lender For Both Mortgages?
Whether or not your current lender will allow you to take out two mortgages concurrently is irrelevant. What matters is ensuring you get the best possible value for money, which may mean considering deals from competing lenders.
This is where the help and support of an independent broker can prove invaluable, by conducting a whole of market search and mortgage comparison on your behalf. If there is a better deal to be found elsewhere, they will find it and ensure it is brought to your attention.
Let To Buy And Consent To Let
If you do not intend to relocate permanently – i.e. you wish to return to your current property at a later date – you may be able to obtain ‘consent to let’ from your lender. This represents a slight alteration to the terms and conditions of your mortgage, providing you with formal permission to let out your property for a limited period of time.
For example, if you need to relocate for a year due to work but have every intention of returning home afterwards, consent to let could give you the freedom to generate rental income during this time.
Becoming A Landlord With Let To Buy
Let to Buy has the potential to be a profitable venture, though brings the responsibilities and complications of becoming a landlord into consideration. While the tenants you let your former home out to will cover your outstanding mortgage repayments, you will still be liable for the property’s general upkeep and maintenance.
There are various additional costs that need to be considered before becoming a landlord with Let to Buy, including but not limited to the following:
Buy To Let Stamp Duty
A Let to Buy transaction technically constitutes the purchase of a second home, meaning you will be liable for the same stamp duty as a Buy to Let investor. This means a standard 3% surcharge on the home you are buying to live in, which could add many thousands of pounds to the final bill.
Tracking down viable and reliable tenants is not always as easy as it sounds and can be surprisingly costly. If you do not have the time, knowledge, or resources to handle things yourself, you will need to employ a letting agent.
Taxable Rental Income
It is also important to remember that the income you generate by way of rental payments from your tenants will be taxable. The UK government is currently taking steps towards a reduction in the amount of mortgage interest that can be claimed against your annual tax liabilities, which should be looked into carefully before becoming a Let to Buy landlord.
Independent Broker Support…
Whether you have decided to go ahead with a Let to Buy investment or simply considering the available options, you will find the help and support of an independent broker invaluable. Particularly given the ongoing uncertainty regarding Brexit now is not the time to make any major financial decisions without the guidance of an experienced professional.
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