Let to Buy Mortgages
Morgan Stewart talks us through Let to Buy Mortgages.
What is a Let to Buy Mortgage and how do they work?
A Let to Buy Mortgage is a mortgage you put on your current main residence to raise some capital to buy another property. You let your property out to buy another one.
What’s the difference between Let to Buy and Buy to Let?
With a Buy to Let, you’re buying additional property to rent out, with a Let to Buy Mortgage you refinance your main residence which you would like to keep as a rental property in order to raise cash to move into another property.
Who can get a Let to Buy Mortgage?
As long as you have a clean credit score, decent income and you can afford to leave 25% equity in your current main residence, anybody can get a Let to Buy Mortgage.
Who offers Let to Buy Mortgages?
This is quite a popular way of keeping your main residence and building a portfolio, so the majority of high street lenders and a lot of specialist lenders offer Let to Buy Mortgages.
What criteria do I need to meet for a Let to Buy Mortgage?
It depends on the lender, but generally, there’s a minimum income criteria of £25,000, some have a minimum number of properties or maximum number of properties that you can have in a portfolio, and obviously your credit rating is important.
The most important thing is a secured credit commitment. All mortgages are secured loans, so the rent of the property is important. Unless you’re in the very high value area of the country it’s not so much of a problem, but if you’re in central London, then you will be restricted on how much you can borrow because of the rent prices.
How much deposit do I need for a Let to Buy Mortgage?
Generally, you need to leave 25% of your equity in your home as a deposit to buy another residential property. If, for example, you had a 90% Loan to Value mortgage on your main residence, you couldn’t get a Let to Buy Mortgage, but if you had a 50% Loan to Value mortgage, then you could.
Can I stay in my Let to Buy property?
No, you cannot, you’re letting this properly to buy another one, so you’re not allowed to live in that property. The whole purpose is that the lender can allow you to have another mortgage, as well as the next residential mortgage, so you need to move out of that property. It usually needs to be a simultaneous transaction, so on the day you complete your Let to Buy Mortgage, you should complete the purchase of a new property.
What are the pros and cons of a Let to Buy mortgage?
The first con is an additional stamp duty surcharge of 3% for buying an additional property. You need a very good property tax accountant to sit down as it is very complicated these days.
A pro is that you get to keep a good property and add it to your portfolio. You can obviously gain extra income from rental properties. You also need to be able to let go of any emotional attachment to your previous home, as someone else will be living in it going forwards.
Are there any alternatives to Let to Buy?
There’s not really many alternatives out there for Let to Buy. You could move out of the property if you’re cash rich, move into another property and turn it into a Buy to Let, but the rates are the same.
How could a Mortgage Broker like yourself help?
We can help guide people through the criteria to make sure they use the right lenders and a lot of Let to Buy lenders are intermediary, which means they only go through Mortgage Brokers. You therefore need to use a Mortgage Broker to access some of the best rates on the market.