You might already have an idea what a let to buy mortgage is and looking to get one yourself. Or maybe you aren’t quite sure and you want to know a bit more about how a let to buy mortgage works and how it may benefit you. Either way this blog from the expert independent mortgage brokers at Barr Financial is designed to shed some light on exactly how a let to buy mortgage works.
What is a let to buy?
If you own your home and are looking to move the usual procedure is to try and sell yours, then buy the new property. When you take a moment to think about why you do this, its because you need to have a deposit for your new purchase. And the deposit is coming from the equity in your home.
However if you are fortunate enough to have savings then you may not need to sell in order to move. If you don’t have savings, then an option is to raise the deposit by a way of an increased mortgage. Both scenario’s would mean you will let out your home when you move out into your new home. This process is called Let to Buy 'you are going to let your home, in order to buy a new one'. Click To Tweet
Why consider a let to buy mortgage?
If this scenario sounds like something that could work for you but you are not fortunate enough to have a deposit with out selling. Then getting a mortgage is the solution and this would be a let to buy mortgage. Our team of experts can provide independent mortgage advice to help you with this. Click here for our contact details.
The key for you on a personal/financial level is to find out how much rent your property would get. Click To Tweet Once you know this then it is important to make sure that the rent more than covers the cost of any mortgage. Our mortgage advisors will be able to help with this.
What is the lending criteria?
Criteira is often changing so please don’t take this as red. It is always best to speak to an expereiced mortgage broker like us. Also criteira is very dependant on individual circumstances, so what might work for one person, won’t necessarily work for another.
- Max LTV 75%
- Simultaneous purchase of new residential with let to buy remortgage.
- Stress test rate 5.5% @125%.
What are the benefits of a let to buy mortgage?
- You are able to keep your property and secure a new income stream by renting it out.
- You are able to benefit more from future property price rises.
- You don’t have to sell and incur costs to do this.
- You don’t have the stress, frustration and hassle of selling and finding a buyer.
Can I do this without a let to buy mortgage?
Yes, you can do this with or with out a mortgage. If you have a mortgage on your current home and don’t need to raise any more for a deposit on the home you want to buy. You just need to get consent from your existing lender. This is important as the terms of your original mortgage is for a residential home and you are then turning this into an investment property. Also don’t assume a lender won’t find out. Lenders do regular checks and use Big Data to keep an eye on you. Click To Tweet Its always best to be upfront and honest with your lender.
Of course if you don’t have a mortgage on your current home and own it outright, then you don’t need any permission from anyone. If you have enough savings for a deposit on the purchase, then you may just need a residential mortgage on your purchase. The lender you are using to buy the new property will still want to know what you are doing with your current property and will asses based on your answers to this question. Its always sensible to explore your plans before you speak to a lender, in case your plans would prevent you getting a mortgage.
How does a let to buy mortgage work?
This type of mortgage is no different and it is effectively a buy to let mortgage. The key for this type of deal is there has to be a simultaneous transaction (buying the new home and remortgaging your existing). Click To Tweet
In practical terms it doesn’t happen completely simultaneously as you need to remortgage first to secure the deposit (the let to buy mortgage), then the solicitor requests the deposit funds for exchange of contracts on your purchase, before the completion when you move into the new home.
What is the process to follow and how do I get a let to buy mortgage?
A let to buy mortgage should not be thought about in isolation. Getting a let to buy mortgage means you have one piece of the jigsaw puzzle. Don’t forget your aim is to buy the new home so you will need a mortgage on the property you want to buy.
This scenario is complex as multiple transactions have to take place to achieve your goal of moving into your new property. Click To Tweet Because multiple transactions take place almost simultaneously both lenders need to know what is happening on both transactions and have to be comfortable with it. Added to this, there is a higher probability of things going wrong as there are more elements to deal with. But don’t worry at Barr Financial we are very experienced of dealing with complex and multiple transactions.
When managing the process an adviser should stagger the applications to make sure one is moving forward smoothly, before the start of the second application. This prevents (as much as possible) the risk of clients losing money and fees. Can you imagine applying for two mortgages at exactly the same time, having two sets of costs to do both, and then both lenders saying no! This would be an expensive exercise in how not to do it. Like I said a good mortgage broker like Barr Financial are used to dealing with these complex scenario’s and managing the whole process from start to finish.