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
Let to Buy mortgages are a complete reverse from buy to let mortgages and are used by those who need to move, but are trapped in their current property because they can’t sell. In this situation the option is to let the current property so free to move to a new area to either purchase or rent a new property.
The client has 2 options:
Option 1 – speak to a lender who may allow to rent the property and often charge a premium in terms of a higher interest rate for the agreement.
Option 2 – obtain a Let to Buy mortgage. A Let to Buy is not regulated by the FCA and specifically allows rental of the previous main residential property to a third party.
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 move your current mortgage to the new property being purchased. Borrowers have historically low interest rate mortgages on their main residential home. 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, you could (depending on potential rental income) arrange a Let to Buy mortgage of GBP 150,000 on the current residential property. This would repay the current mortgage enabling the loan 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, keeping the current low interest mortgage.