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Let to Buy
Let to buy mortgages are a financial solution to keeping your existing home if you wish to rent it out.
If you're familiar with let to buy and want to learn more about the rates and terms on the UK market, please read on - or give Revolution Brokers a call to begin your application!
For new let to buy mortgage applicants, we'll also explain the eligibility criteria most lenders will look for and what you can and can't do with this type of home financing.
Please get in touch at 0330 304 3040 or email us at [email protected] for tailored guidance around any of the topics discussed in this guide.
Let to Buy Mortgages Explained
A let to buy mortgage is a way to retain a property and rent it to tenants when you move out, instead of selling the home. You can also use let to buy if you inherit a property and want to keep it as an investment asset.
There are usually two elements to a let to buy mortgage agreement that run simultaneously:
- A new buy to let mortgage against the property you will rent out.
- A residential mortgage on the home you want to move into.
You can also release equity from your rental home during this application process to raise the deposit finance for a new property purchase.
One of the common scenarios is that a couple has moved in together and both own mortgaged properties. Let to buy mortgages mean you can keep both, living in one and earning an income from the other.
Another potential situation is that you can't sell quickly and don't want to accept a below-market price just to sell your previous property.
Let to buy mortgages mean you can move into your new home and receive earnings from the previous property until the market is in a better place to sell for a higher value.
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Let to Buy Mortgages vs Buy to Let Mortgages
We appreciate that these terms are very similar, so it's worth clarifying the difference between let to buy and buy to let!
A let to buy mortgage is designed for someone who already owns a residential property and wants to turn it into a rental.
On the other hand, buy to let is a mortgage to purchase a new property, primarily to rent it out or add to an existing rental portfolio.
Most let to buy mortgages are streamlined, so the same lender offers both mortgages on both properties. You can take out two separate mortgages, but it's often better to combine the borrowing, as you'll usually get a better deal.
Lender Criteria on Let to Buy Mortgages
So, are you eligible for a let to buy mortgage? The key is to work with an experienced broker before applying to ensure you're choosing the right lender and getting access to the best deals.
Let to buy mortgage lenders will consider:
- Your deposit or equity in the property.
- How much rental income you're likely to receive.
- Affordability metrics and your credit history.
- Your age and the condition of the property.
We'll run through those let to buy mortgage criteria in a little more detail:
Deposit Requirements on Let to Buy Borrowing
Most let to buy mortgage lenders will ask for a deposit of at least 25% or expect you to have this amount of equity in the property.
The standard let to buy mortgage deposit range falls between 20% and 40%, although you'll need to have no other mitigating circumstances to secure a let to buy mortgage at the lower end of the spectrum.
In some scenarios, lenders will accept as low as a 10% deposit or equity, although you'll usually need an experienced broker to negotiate on these terms.
Rental Income Assessments
The rental income needs to be sufficient to cover the let to buy mortgage costs, so a lender will need to see a projection of how much you can expect to earn per month.
You may need to consider whether it's possible to achieve a higher rent if you need a more substantial let to buy mortgage value.
Usually, the rental income needs to be 125% or more of the monthly interest payment and higher if you're in a higher tax bracket. You can ask local letting agents for quotes to give you a good indication as to a reasonable expected income.
Let to Buy Mortgage Affordability
As well as evaluating the rental income, let to buy lenders will need to run through an affordability assessment, particularly since you need to be able to afford two mortgages.
Part of that is proving the expected rental income, so you'll need to provide a copy of your quotes in writing.
Some lenders have additional affordability requirements. They might ask that let to buy mortgage applicants earn at least £25,000 a year before accounting for the rent.
Credit checks are also standard, so having a clean credit history will strengthen your application.
However, you can get let to buy mortgages with bad credit by using a specialist lender.
Lenders may apply a maximum mortgage value based on your annual income, usually four times your salary, but sometimes higher.
This metric can vary considerably, so some lenders will use different calculations and might not include bonuses, commissions and overtime.
Therefore, if you want a let to buy mortgage and earn a variable income or are self-employed, it is crucial to work with a broker to signpost the most appropriate lenders to apply to.
Age Limits on Let to Buy Mortgages
Most let to buy lenders will approve applicants from 25 and up to 75 - although this isn't set in stone.
Revolution works with a broad network of lenders that will accept applicants of any age, providing they have the income and equity to justify the amount they wish to borrow.
There are also niche later life lenders who might be able to offer a let to buy mortgage if you don't fall under the general criteria you'll find with most mainstream providers.
Maximum Borrowing Caps on Let to Buy Mortgages
We've looked at affordability and how your rental income may impact the amount you can borrow on a let to buy mortgage - but the property value will also have an effect.
Lenders look at Loan to Value (LTV) which means the amount you want to borrow, as a ratio against the property's value on the open market.
Typically, LTV rates on UK mortgages go up to about 75%.
However, there are possible mortgage products that stretch to 80% or even 90% of the property value - although this is far more unusual in a let to buy mortgage situation.
That's because if the lender has extended a loan for nearly 100% of the mortgage value, and it ends up in a repossession scenario, they're very unlikely to recoup the lost amount through a repossession sale.
Some let to buy mortgage lenders are more risk-averse and offer up to 70% LTV - which means you'd need a 30% deposit or to own equity of 30% to qualify for their mortgage products.
Lending caps are another factor to contend with, although again, this varies between let to buy mortgage lenders, and some have far higher limits than others.
For example, you might find that a mainstream lender will offer a maximum let to buy mortgage, in any scenario, of £500,000 or £600,000.
If you need to mortgage a let to buy property worth far more, please get in touch as there are specialist lenders who don’t have any particular limits, provided you pass the affordability and eligibility assessments.
How to Find the Best Rates on Let to Buy Mortgages
Every mortgage applicant wants to find the cheapest interest rates, and this is no different in the let to buy sector.
Finding the lowest cost let to buy mortgage deals will depend on several factors, and the lender's policies, such as:
- Deposit or Equity: The more deposit you have, or the more extensive the proportion of equity you own, the lower the risk of the let to buy mortgage. You can achieve lower interest rates by applying for a lower LTV and will have a wider choice of lenders.
- Age: younger borrowers can typically borrow more - with the caveat that it depends on their earnings. The longer the term of the mortgage, the lower the monthly costs, and the more flexibility there is to demonstrate affordability.
- Income Type: if your primary income is in the form of a permanent employment contract and a stable salary, you'll find it much easier to prove affordability. Many lenders are less generous with self-employed applicants, and as we've seen, some will ignore variable elements of your income when they set a mortgage cap.
- Credit History: the better your credit record, and the higher your score, the more attractive a let to buy mortgage applicant you are. However, if you have credit issues several years ago (reports expire after six years), most lenders will likely disregard them or consider your application based on other factors.
Stamp Duty on Let to Buy Mortgages
Another cost to be aware of before you mortgage a let to buy property is that you will need to budget for additional expenses such as the Stamp Duty levy on second homes.
From 2016, property buyers with an existing property are required to pay an extra 3% levy, on top of the Stamp Duty rate calculated depending on the home's value.
However, if you sell the property within three years of purchasing the second home, you can claim a rebate on the 3% levy paid at the time of the transaction.
Let to Buy Alternative Products
There are thousands of mortgage products on the UK markets.
While let to buy might be the ideal solution in many situations, it's essential to be informed about potential alternatives that could be more cost-effective.
Examples of possible replacement products include:
- Buy to Let Mortgages: if you aren't keen on having two mortgages, then remortgaging an existing home as a buy to let investment home and renting your living accommodation may be an option.
- Consent to Let: you cannot mortgage a rental property on a residential mortgage unless you have permission from your lender to rent the home while you move out or rent somewhere different to live.
- Second Charge Mortgages: another option is a second mortgage, which acts like a dual mortgage secured against the same property, but with a different lender. Second charges are usually used when you need to raise funds by releasing equity but don't want to remortgage your existing loan, especially if you are on an excellent rate.
If you have sufficient equity in your property, you can unlock equity and use the cash raised as a deposit or towards the cost of buying a second home.
Interest-Only Let to Buy Mortgages
The let to buy mortgage proportion related to the rental property is usually interest-only, which is the standard in the buy to let mortgage world.
You might be able to find a repayment deal or a residential mortgage on an interest-only basis, but it's less common.
Interest-only mortgages require you to demonstrate a viable exit strategy showing how you will repay or refinance the capital balance when the term ends.
Your repayment vehicle, or exit strategy, could come from a number of sources such as selling another property, cashing in investment bonds or drawing on cash savings.
Note that some lenders will have strict rules about the exit strategies they will accept to consider offering a residential mortgage on an interest-only basis.
Expert Support with Let to Buy Mortgages
Every property is different, and with so many products and assessments to consider, it's not always easy to know whether let to buy mortgages are the right solution and whether you're likely to pass the eligibility requirements.
As an independent broker, our team will discuss your requirements and circumstances and recommend some of the solutions we think are best for you, including comparisons of the suitable let to buy mortgages currently available.
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As specialist mortgage brokers for a huge variety of applicants, the whole-of-market consultants at Revolution provide access to an exceptional range of lenders, products and mortgage deals. That means you get the advantage of professional negotiation and broker-exclusives through an established lending network to ensure we always find you the most competitive mortgage available.
The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.