If you want to let out your existing home and buy another one to live in, you will need a ‘Let to Buy’ mortgage. …although, read on as there are circumstances where you actually don’t!
What is a Let to Buy Mortgage
How having two mortgages at the same time works is, firstly by converting your existing mortgage into a buy-to-let mortgage – that’s so you can let it out.
You then secondly get a ‘standard’ residential mortgage on the new home you’re buying.
Why do it this way around?
Couldn’t you just let out your existing home and get a buy to let mortgage on the new home you’re purchasing?
The simple answer is no, because nearly all lenders won’t let you live in a property you own with a buy to let mortgage.
The other reason is typically Buy to Let mortgages require a bigger deposit, often lenders will only lend up to 75% LTV [loan to value] on a Buy to Let property. So trying to do it that way could have ended up being more ‘expensive’.
So instead it has to be done in the way mention above using two steps:
- Obtain a buy to let mortgage on your existing home so you can let it out.
- Obtain a ‘standard’ residential mortgage on your new home.
Let to Buy is it right for me?
There a number of reasons that let to buy mortgages are becoming increasing popular but are they right for everyone?
The most common reason for people wanting to Let-to-Buy is because they want to move BUT also want to keep their home as a long term investment. With let to buy you can do this.
It is also very common for someone that already owns a home but wishes to purchase another, possibly jointly with say a partner. This way you get to maintain ownership of the property but, crucially, you are able to buy another.
Or it might be just a way to purchase a new home that you are currently unable to buy as you can’t sell your existing one. This could be due to market conditions or maybe it’s just down to speed. Maybe you’ve seen a house on the market that you wish to purchase and don’t want to lose out believing that by the time you’ve sold your existing home the other property may have sold.
Let to Buy also gives people the flexibility to relocate for work or lifestyle reasons. You can purchase a new home and rent your old one, keeping your ‘options’ open for a possible move back.
Whatever your reasons for Let-to-Buy, make sure you understand the risks of what your taking on.
Let-to-Buy is NOT Buy-to-Let
Often confused and understandably so, given it’s the same phase in reverse, so let’s just clarify it. Buy to Lets are when you are purchasing a property with the intention of renting it out. With Let-to-Buy you are the one who’s going to be living in one of the properties, that’s the difference.
Let to Buy Mortgage Rates
There are two parts to this.
Part 1: is the Buy to Let mortgage on your existing property. The first thing to be made aware of is Buy to Let mortgage interest rates are generally higher than residential mortgages. However they are readily available with most lenders offering BTL products. Rates will of course differ from lender to lender and more importantly depending on the equity you have in the property. But typically interest rates are around 2-3%.
Part 2: is the mortgage required for your new home. This is classed as a residential mortgage so in other words just a standard mortgage. Interest rates are generally lower for residential mortgages then BTL mortgages so really hunt around and you should be able to pick something up for under 2%.
Let to Buy Mortgage Criteria
Remember when obtaining a Buy to Let mortgage that your eligibility will be based on the rental income from the property, not your income, from say your job.
- The rental income from the property needs to be more than the mortgage repayments. Most lenders look for the rent to be 125% of the mortgage. So if your mortgage is going to be £1000 per month the lender would want to see rental income of £1,250 from the property.
- Maximum LTV [loan to value] of 75% – 80%. Most lenders will lend up to 80% of the value of the property but no more. You could find it very difficult to find a lender if you don’t have 20% equity in your current home. The good news is the more equity you have in your property generally the better interest rate you can get from lenders!
- Some lenders require proof that you’re buying a new home, however usually this is as simple as providing them with a copy of a mortgage offer for your new property.
Nationwide Let to Buy Mortgages
Nationwide Building Society don’t actually offer let to buy mortgages but their Buy to Let arm ‘Mortgage Works’ do.
The Mortgage Works state that they are willing to lend up to a maximum of 80% LTV.
Natwest Let to Buy Mortgages
They actually just class it as a Buy to Let mortgage, so normal rules apply, 25% LTV [but 35% for new builds] and will lend up to a maximum age of 70.
Halifax Let to Buy Mortgages
Again like Natwest, Halifax just classifies them as Buy-to-Let mortgages so don’t waste your time looking specifically for a mortgage product that doesn’t exist. With that said Halifax class what you’d need as a ‘new buy to let mortgage’.
Typical rates from Halifax are:
0-60% LTV – 2% – Fixed for 2 years
60-75% LTV – 2.4% – Fixed for 2 years
60-75% LTV – 2.83% – Fixed for 5 years
Visit the Halifax website for more details.