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What is a Let to Buy mortgage and how do they work?

Effectively, Let to Buy is two transactions, where you rent out your existing property in order to buy a new residence to move into. In the end you will own two properties.

What’s the difference between Let to Buy and Buy to Let?

With Let to Buy you are moving from one house to another, with a Buy to Let transaction. You are concentrating solely on a single property.

Who is a Let to Buy mortgage for – can anybody get one?

Obviously that will be subject to the terms and conditions and criteria of the lender. Let to Buy can be done with one single lender who will do both mortgages – one on the existing property, the Buy to Let, and one on the property that you’re going to move to. Alternatively, you could have a combination of two lenders – one on each property.

This approach is basically available to anybody who already has a home, wants to move to a new property and retains both. That’s the type of customer a Let to Buy is targeted towards.

What criteria do I need to meet for a Let to Buy mortgage?

Because there are two transactions going on – the Buy to Let on the existing property and the residential mortgage on the new property – there are two sets of criteria.

With the Buy to Let, the lender will look at things such as the rental income that the property can generate, the value of the property and the Loan to Value percentage. With the residential property, it’s more about your personal circumstances: your income and your expenditure. Your overall affordability will inform how much you can borrow.

How much deposit do I need and how much can I borrow?

With Let to Buy you can go up to 75% of the value of a property. Quite often what people do is borrow some of the money in their existing property to put towards a deposit on the forward property.

Sometimes they can even draw out enough money to be able to buy the property outright, in which case they won’t even need another mortgage on the new property. Let’s say for example that you had a property worth £200,000 and your existing mortgage was £100,000. You could borrow up to £150,000 which is 75% of the value of that property. You’d use £100,000 to pay off the existing mortgage and the other £50,000 you can then use as a deposit on the new residential property.

Plus, with some lenders you can borrow up to 95% of the value of the property – so you only need a 5% deposit.

Find out how much you can borrow

What are the pros and cons of Let to Buy?

Obviously the main pro with Let to Buy is that you’re going to end up with two properties – that’s two lots of capital appreciation if you keep the property over a period of time. Properties generally do tend to go up in value. Let’s say for instance, they both go up by £100,000 – instead of you having just £100,000 worth of equity, you’ve now got £200,000 worth.

The cons are that you’ve got twice the amount of debt, if you have mortgages on both properties. So that’s obviously twice the amount of risk involved. There’s also the added responsibility of having to rent out your property, which means dealing with tenants, agents perhaps, and managing any repairs.

That’s extra responsibility you wouldn’t have if you just did what most happens most of the time when someone sells their property – which is to sell one home and buy another.

Are there any alternatives to Let to Buy?

There are certainly alternatives in retaining two properties. There isn’t a specific alternative product, as such, but there are other ways of doing it.

For instance, if you had cash you could use that to pay off your existing mortgage or buy the new property that you’re moving to outright.

You could also potentially have two residential properties. There has to be a plausible reason why a lender would give you two residential mortgages, though. One example is if you want to buy a property by the coast to use as a second home. Or you might want a second property to house your children while they are at university. Perhaps you need a home nearby for an elderly parent.

There are lots of plausible reasons as to why somebody might need a second residential mortgage – so these are some of the alternatives to a Let to Buy scenario.

How can a mortgage broker help?

A mortgage broker can save you time, effort and money by looking for the most suitable deal for you. We have the expertise and access to hundreds of different products to choose from. We sift through all those products to find the most suitable one for you.

Some brokerages also have exclusive rates that you can’t get anywhere else, which are lower and more attractive than deals you will find directly.

The Financial Conduct Authority does not regulate some Buy to Let Mortgages.

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