Let to buy arises when home owners choose to rent their existing property out instead of selling it when they are looking to move to a new home. They will often obtain a buy to let remortgage on their existing property in order to raise the deposit required on their new purchase.In a slightly confusing situation some lenders refer to the buy to let remortgage of your existing residential property onto a buy to let mortgage ‘let to buy’. Other lenders will refer to the new purchase as a ‘let to buy’ purchase. As a result it’s best to refer to each part of the transaction clearly – a buy to let remortgage in order to fund a new residential purchase. The combination of these two elements forms a ‘let to buy’ transaction rather than calling any individual one of those two elements a ‘let to buy mortgage’.
In today’s market this is a relatively popular transaction as many people are keen to hold onto their old properties as prices today are not as buoyant as they were in the past. This is combined with the fact that at present rental yields are very good which is attracting new landlords to the market as we are seeing diminishing returns on the stock market for example – many investors haven’t seen a profit in a decade and with inflation running higher than most deposit accounts that’s not much more appealing.
High levels of tenant demand often mean that a let to buy mortgage is less risky than it has been at some points in the past. The average time a landlord will hold a vacant property is at one of the lowest levels since records began. In the past the old property may have been empty for months – now it is likely that it will be filled within a few weeks as long as it is in a suitable area for tenants and is of the size and type desired by your local market. You should definitely consult a lettings agent before you make your decision on this as desirable homes for purchase and rent will differ significantly and in the end sometimes selling your property is the best way forward.
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Transcript: Let To Buy Mortgages Explained
Hello – My Name is Erik
A lot of people don’t want to sell their existing house because of current difficulties in the housing market. At the same time the property investment market looks appealing at present when the property market isn’t very strong.
What is a let to buy?
Instead of selling your home to release equity to put down as a deposit on your new purchase it is possible to refinance your existing house to raise money for a new deposit. This old property is then rented out to cover the mortgage and you move into the new home.
- Ensuring you have enough equity in your property to raise a 75% buy to let mortgage and still have sufficient money to deposit.
- The expected rent – your old property must be of a type and in an area suitable for renting out.
- The ability to obtain a mortgage on the property.
Assessing The New Property
Valuer will usually be looking for the rent on your existing property to be 125% of the mortgage payment on your new buy to let mortgage (the one you obtained by refinancing your residential property and moving out of it). This does vary but the higher the better.
Your new lender for your new residential property will also be concerned with the rental income on your old property. They will take professional advice – usually asking for an Association of Residential Letting Agents Letter confirming the rental income as well as taking the valuers assessment of the value of your new property. It’s important you consider carefully any concerns any of these professionals raise with regards to your property.
Critaria and Choice of Lenders
Some lenders will not allow you to remortgage a residential property onto a buy to let. For example Coventry Building Society did not offer this facility at the time of application.
Naturally you will not have a tenant yet in this kind of application. Some lenders will only ignore background buy to let properties that are currently tenanted. For this reason you will need to ensure the mortgage lender for your new purchase is fully aware of your plans.
Better rates are always available at lower loan to values. You will need to take this into account.
The future state of the rental market, interest rate changes and your personal finances are all risks you need to take into account. Property investment is a long term venture and you should not enter it looking to make short term profits as you can lose as well as make money. Your personal finances must be strong enough to withstand any short term issues.