Let to Buy
Let to Buy: Move house whilst still owning current home
This type of mortgage is popular when property prices and transactions are depressed. The amount available to borrow is determined by the rental possibility of the property. The vast majority of lenders require the rental income to be 125% of the monthly interest only mortgage payments based on a notional interest rate of 5% i.e:
Property valuation – GBP 100,000
Mortgage amount – GBP 85,000
Monthly mortgage payments based at 5% per annum – GBP 354.17
Minimum rental income required – GBP 442.71
Letting your main home to purchase another
Let to Buy mortgages are a complete reverse from buy to let mortgages and are used by clients who want or need to move properties but are trapped in their current property because they either can’t sell or can’t sell at the price they require. In this situation clients are now more and more often letting their current property so they are free to move to a new area where they will either purchase a new property or rent. This situation could be driven by a number of factors i.e. to be closer to a good school, moving to a new area for a short/medium term period before returning etc.
The client has 2 options:
They can either speak to their current lender who may or may not allow them to rent their property and often charge a premium in terms of a higher interest rate for their agreement.
Alternatively, the client could obtain a Let to Buy mortgage. This mortgage is not regulated by the FCA and specifically allows a client to rent their previous main residential property to a non-related third party person.
With Let to Buy mortgages you are not required by all lenders to purchase a new property. Renting or living with family and friends is also acceptable however if you were to buy a new property you would have the added benefit of being able to port/move your current mortgage to the new property to be purchased. Many current borrowers have historically low interest rate mortgages on their main residential home that they do not want to lose. A Let to Buy mortgage can allow your current mortgage to be moved to a new property thus enabling you to keep that rate i.e.
Current property valuation – GBP 200,000
Current residential mortgage – GBP 100,000
New property purchase price – GBP 200,000
Savings – GBP 50,000
In this scenario, our whole of market mortgage brokers could (depending on potential rental income) arrange a LTB mortgage of say GBP 150,000 on the current residential property. This would repay the current mortgage enabling it to be moved to a new property and raising an additional GBP 50,000. With the clients GBP 50,000 in savings they now have the full GBP 200,000 required to buy the new property whilst keeping their existing property on a self funding LTB mortgage and just as important, keeping the current low interest residential mortgage.