Let to buy can be an option for those who want to purchase a new home whilst keeping hold of their current property and letting it out. As someone looking to buy a new property, it can allow you to release some equity from your current home and put it down as a deposit on your new one.
It’s a popular choice for couples who move in together later in life, perhaps once they both already have their own properties. In this case, you’d both move into one of the properties and rent the other one out on a Let to Buy mortgage.
You might also choose let to buy when you’ve got your sights on a new property but are struggling to sell your current home in time, or if it’s significantly dropped in value. If you have enough equity, then it’s possible to remortgage on to a let to buy mortgage and release funds to use for your deposit on the new home.
So it can work out that you own both - using the rental income from your home that you’re now letting out and using that to cover its mortgage repayments (at least). You then take out a separate new residential mortgage for your new home.
Although there are potential EU changes happening in the next few months, for now, let to buy remains an option for many homeowners looking to expand their property portfolio, if they have the opportunity to do so.
What is the lending criteria for Let to Buy?Like all mortgage types, whether you’re choosing a let to buy mortgage for the first time, or refinancing with one, there’s a strict set of criteria to meet in order to be approved.
Many lenders differ, but here’s a standard list on what they may demand:
- Minimum age: 25 (for most lenders)
- Maximum age: 75
- A large deposit (or equity), usually around 25%
- Monthly rental income of at least 125% of the mortgage interest
- Good credit rating
- To pass the individual lender’s affordability assessment
- Have net disposable and allowable income
“With tenant demand remaining strong and house prices on the rise in many areas, it’s not surprising that many are considering becoming a landlord. Let to Buy could offer those moving up the ladder the opportunity to keep hold of their current home as a long term investment.” ~ David Hollingworth
What’s the difference between let to buy and buy to let?Let to buy and buy to let are both mortgages for those looking to let out a property, but work slightly differently. Buy to let mortgages are for those looking to buy a property to let out, or remortgage one that is currently let.
Let to buy differs in the sense that it usually means you are living in the property that you wish to let out then move somewhere else. So, you remortgage to a let to buy in order to release equity from your current property and provide the deposit for a new residential property. If you subsequently remortgage this property further down the line it would be treated as a normal buy to let remortgage as it is currently let out.
If you have any more questions about let to buy mortgages and how they work, then the best thing to do is call our advisors on the number below.