LTB Explained

Interest in Let to Buy mortgages is booming in the United Kingdom. Something of an ‘upside down’ version of the traditional Buy to Let investment, Let to Buy brings its own unique advantages and disadvantages.

In this guide, we’ll be looking at a few of the ups and downs of Let to Buy for the everyday homeowner. So, if you have been considering moving to a new house but would like to retain ownership of your existing property, the following information could help you make the right decision.

What is Let to Buy?

Let to Buy mortgages are involved in the purchase of a new property and the letting out of your existing home to tenants. The monthly rent you receive must cover your monthly mortgage obligations on your previous home, allowing you to use your own income to cover the mortgage payments on your new home.

Assuming you have sufficient equity in your current property, you may also be able to raise the deposit requirements on your new home with room to spare. This opens the door to the possibility of second homeownership and an ongoing revenue stream, without having a large down payment.

Let to Buy can be great for generating profit and is a viable alternative to selling outright. If you are unable to sell your current home for the price you think it is worth, you could always consider holding on to it and letting it out.

Mortgages for Let to Buy

In order to let out your current home and buy a new property, you will usually need to have two mortgages in place. It is sometimes possible to organise a single loan to cover the costs of both properties, though it is more common to enter into two separate loans.

As you will usually be restricted to a Loan to Value (LTV)on your new home, you will need to provide a deposit to complete the purchase in either cash or by borrowing money against the equity you have tied up in your current home.

Flexibility and availability vary significantly from one lender to the next, which is why it is important to explore the available options. Be sure to consult with an independent broker who can advise on the best way forward to suit your requirements and your budget. Some of the most flexible and affordable Let to Buy mortgages on the market are available exclusively via established brokers.

How is Let to Buy different to Buy to Let?

Let to Buy differs from Buy to Let in that you are not looking for a second property to let out. Instead, you intend to let out the home you currently live in, while relocating to a new property. Both ventures have the same profit-making potential, though are somewhat different in their approach.

What are the Lending Criteria for Let to Buy mortgages?

Lending criteria differ significantly from one lender to the next. In most instances, the following requirements and restrictions will apply:

• Most but not all lenders have a maximum applicant age of 70
• Loans available up to 75% LTV (sometimes more)
• Evidence of an onward purchase
• Proof of current financial status/income
• Recent credit history check
• Evidence of projected rental income

There is often a degree of flexibility, in accordance with both the requirements of the applicant and their proposed property purchase. Depending on how much equity you have tied up in your current home, it may also be possible to qualify for a Let to Buy mortgage with an imperfect credit history. If there are any issues with your credit history or current financial status, a competent broker can pair you with a flexible and accessible lender.

Rental Potential

As a general rule of thumb, Let to Buy lenders want to see proof of projected monthly rental income of at least 125% of the current mortgage payments. This provides a degree of ‘breathing room’ and ensures that the rental income you generate will be more than enough to cover the outstanding mortgage payments on your former home.

Establishing rental potential means first consulting with a letting agent, who should be able to provide you with a formal estimate. It is also possible that your prospective lender will insist on using their own trusted third-party service providers to establish the projected rental value of your home.

What Are the Drawbacks of Let to Buy?

The most important thing to consider is the fact that you will be responsible for two separate mortgages. Should anything happen that may compromise your ability to repay either mortgage, one or both of your properties could be at risk of repossession.

In addition, purchasing a second property means taking any additional stamp duty into account. All potential taxation issues and obligations must be carefully considered, which can impact the profitability of a Let to Buy venture.

It is also important to make every effort to compare the market, as not all Let to Buy mortgages are as competitive as they could be. Always consider the Let to Buy deals available from independent lenders as well as those on the High Street, as the biggest mainstream banks are not always the best for these specialist property loans.

Consult with a Broker

It is strongly advisable to speak with an independent broker before applying for a let to buy mortgage. This will enable you to compare as many deals and offers as possible from specialist lenders across the UK.