Everything You Need to Know About Let-To-Buy Mortgages
Let-to-buy mortgage is when you rent out your current home and buy a new property to live in. Read on to find out everything you need to know about let-to-buy!
What Is Let-To-Buy?
Let-to-buy mortgage is when you hold on to your existing home, rent it out to tenants, and then buy a new home to live in. It is an option of purchasing a new place while holding on to your current property and allow someone else to live in it.
Let-to-buy is the opposite of buy-to-let, which essentially means buying property to rent it out. With let-to-buy, you purchase a property with the intension of living in it and then renting out another property.
Some complications with let-to-buy include the costs that accompany becoming a landlord who handles two mortgages.
Lending Criteria for Let-To-Buy
Similar to other mortgages, there are strict criteria which need to be met to gain approval. Lending criteria do differ from lender to lender, but most will require the following:
- Minimum age of 25 for most lenders
- Maximum age of 75
- Deposit, or equity, of 25%
- Monthly rental income of approximately 125% of the mortgage interest
- Excellent credit rating
- Have net disposable income
Reasons to consider Let-To-Buy
One of the primary reasons to consider Let to Buy is because you want to use the deposit or equity you’ve built up over the years to enable you to move to a new home while maintaining ownership of the existing home as well.
Other situations in which homeowners would best suit from a let-to-buy option would be when:
- They are in a rush to re-locate to a new home and do not have time to sell their current property.
- Market conditions do not allow them to sell their current home.
- They want to buy a property with their partner but want to maintain the ownership of the current home.
- They are moving outside the city or country for a few years, but plan to move back after a specific period.
Opting for Let-To-Buy
Several lenders offer let-to-buy mortgages that are specifically designed for those interested in renting out their current properties. Nationwide subsidiary, The Mortgage Works, has over twelve let-to-buy products. Furthermore, BM Solutions, a subsidiary of the Lloyds Banking Group, also allows customers to purchase their buy-to-let deals on a let-to-buy basis.
This approach is one of the most common ones as you can easily switch your existing residential mortgage to a let-to-buy deal, which is calculated based on the expected rental income of the property. In this sense, your actual income is essentially free, allowing you to take up a new residential mortgage on the upcoming property.
If you are unable to sell your current home but do not need to move anytime soon, it is best to wait until the current market conditions change. Since the market is almost always fluctuating, there will come a time when you can sell your property with more ease compared to present times.
If let-to-buy is expensive for you, some home improvement techniques can increase its value and likelihood of being sold in the future. Since rates are relatively low in current times, renovations and home improvements can be funded by remortgages rather than personal loans.
However, not all factors work for everyone. It is important to understand your local market with help of an experienced broker who can look at it extensively and find you the best deal for your budget.
Author: Craig Upton