Let to Buy Mortgages:
You might already be aware of what a let to buy mortgage is, however for those that don't, it can be a complex process which needs to be managed carefully. At Barr Financial we are independent mortgage brokers and are experts when it comes to dealing with this type of mortgage.
Here are a few questions which might help establish whether a let to buy is right for you. If you answer yes to any of them, then it could be the right option for you. Of course if you are not sure please feel free to ask one of our freindly mortgage advisors
Q. Do you need to move but are stuck in a chain?
Q. Would you like to move without relying on finding a buyer for your property?
Q. Do you like the idea of keeping your property, renting it out and still being able to buy?
There are many reasons why increasing numbers of homeowners opt to keep, let their main residence and buy a new place to live. It may be in answer to one of the questions above, in response to a strong rental market or indeed the tax breaks available to Landlords although this is always changing so always seek up to date tax advice.
If you would like to read some of our blog articles about let to buy mortgages you can do that here.
Summary of Let to buy mortgages:
A let to buy is where you keep your existing home, raise your deposit on it for the new purchase (on a let to buy mortgage), rent it to tenants (they cover the cost of the new mortgage) and then buy a new main residence to live in. You may need a mortagage on the new purchase, but thats okay. Effectively you are able to borrow 100% of the purchase price of your new home, without having to sell or use your own hard earned savings.
Letting your home in order to buy a new property might be the solution to a number of issues that many people are currently facing or maybe just an astute financial decision. Find out more by downloading our FREE guide to Let to Buy. Or get in touch with one of our expert buy to let mortgage brokers who will be delighted to help.
We have some FAQ's below, but feel free to ask your own question:
FAQ's from Let to Buy Mortgage Brokers:
What is a Let to Buy?
A let to buy is where you own your home and are looking to move to a new one. Traditionally most people sell their home and buy a new one simultaneously (known as a chain). You don't have to do this. Instead of selling your home, you can consider keeping the property and renting it to a tenant. Hence the term let to buy (you are letting your home to buy a new one). It's not a bad plan if you like the idea of investing in property or you are frustrated with trying to sell. Have a read of one of our blogs here.
How does a let to buy mortgage work?
The issue stopping most people doing this (assuming they need a mortgage for the new property) is they will also need a deposit. If you are not selling how are you going to raise the money for a deposit unless you have significant savings? The answer is a let to buy mortgage. As the intention is to turn your home into a buy to let property when you move out, you can remortgage your home to release a deposit for the onward purchase. Read one of our blogs about the pros and cons.
What is the lending criteria for a mortgage on a let to buy?
Not wishing to sit on the fence but it is important you are aware every lender has different rules and as it is intrinsically linked to another purchase (which may also need a mortgage) it is therefore more complicated and costly mistakes can easily happen. However there are some broad criteria themes; 1) the amount you can release for a deposit will be dependent on the potential rental figure your property can achieve. 2) The assessment of borrowing against rent is sometimes based on a notional rate of 5.49% of which the rent has to be over 125% of this figure. 3) Maximum LTV (loan to value) is usually 75% 4) The maximum age at application has to be before someone's 70th birthday 5) You must have owned your home for a reasonable minimum period (6+ months) 6) the transaction has to be simultaneous with your onward purchase 7) If you are getting a residential mortgage for your onward purchase it is highly likely you will need to evidence a copy of the mortgage offer 8) Is it plausible, does it make sense? In other words does the scenario feel right! Lenders will do a sniff test!!
How much can I borrow on a let to buy?
This will be dependent on the value of your home, whether you currently have a mortgage or not, the size of the mortgage, the potential rental figure the property will achieve and your personal circumstances. An example could look like this: Home valued £400,000, mortgage £220,000, potential rent will be £1,500. In this scenario the client could borrow a total of £262,295 and therefore release £42,295 (£262,295 - £220,000). Of course if the client had a small mortgage or none at all, the amount they could release will be much more.
Is there a minimum income amount required for let to buy mortgages?
The short answer is no, however this can be dependent whether you are an experienced landlord or not. Don't worry if you are looking to do your first buy to let as lenders are flexible in this regard but it may still come down to the amount you want to borrow against the amount of personal income. There is no black and white answer unfortunately as it really comes down to your exact circumstances.
Can I remortgage my let to buy?
You can remortgage a let to buy mortgage once you are no longer tied into it. An example could be you originally signed up to a 2 year fixed let to buy mortgage and now two years later the deal is coming to an end. Rather than going onto the lenders standard variable rate which is higher you want to review your options. As the property is a buy to let with tenants in it, you will simply have to remortgage onto a buy to let deal.
What is the difference between a let to buy and buy to let mortgage?
In terms of what your plans are and what you are going to use the property for (renting) there is no difference. You will have a buy to let property. The difference is only really relevant when you are arranging a mortgage and the way this is structured. The deposit is being raised on your home (which you will rent out) by way of a mortgage and when you move out you will be moving into a new home. A buy to let mortgage on the other hand is a property which is currently being rented or will be if you are looking to buy, but which is not your current home.