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Let to Buy Mortgages

Let to buy mortgages, not to be confused with a buy to let (BTL) mortgage, are products aimed at those with existing property who want to move without selling their home.

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If you are looking to move home but you don’t have a buyer or you do not have a sufficient cash deposit for the new property, one way you may be able to facilitate your move is through a let to buy mortgage. 

At Simmonds Mortgage Services we have access to a range of mortgage lenders who will consider using your current property to raise the deposit.

What is a let to buy mortgage?

This mortgage is a specialist product where you switch your current residential mortgage to a new let to buy mortgage and take out a new residential mortgage on the property you want to buy. These transactions occur at the same time.

Some clients are also transferring their current homes into Limited Companies and putting buy to let mortgages on them. This has many pro’s and con’s, so if you are considering this then please get in touch.

How do let to buy mortgages work?

A let to buy mortgage helps you if you want to move but have not been able to find a buyer or you simply want to keep hold of the current property. To take out let to buy mortgages, borrowers must have sufficient equity in their current home to release enough to put down a deposit on a new home. Or have sufficient savings to cover the new purchase.

The current home is then let out on a buy to let basis with the rental income covering the monthly mortgage payments. You can then cover the repayments for the new property from your salary or other income sources.

You can also take a let to buy mortgage and not buy a new residential home to live in, this could be possible if you wanted to move into rented accommodation or move in with family but you wanted to rent out your current home rather than sell it.

What is the application process?

You can apply for a let to buy mortgage through a mortgage broker who will have access to the whole of the market, ensuring you get the best let to buy rates for your circumstances.

The chosen lender will need to check that you meet the lending criteria for both products simultaneously. Generally, you should:

  • Meet the affordability criteria for your new home in terms of your income multiples and minimum income requirement
  • Have a minimum of 10% deposit for your new home
  • Have a 25% deposit for your buy-to-let mortgage – usually equity in your existing property
  • Ensure your rental income will cover circa 125%-145% of your buy-to-let mortgage repayments
  • Have a good credit score, although you may also be able to find a lender who will work with you if you have a poor score but interest rates and deposits will be higher

What happens next?

  1. You will need to get a valuation of your current property so that the lender can assess how much they will be prepared to lend you.
  2. Check the local rental market to get an assessment of the rental income you can expect from your existing property.
  3. You’ll need to coordinate the application process for both mortgages as they will need to be approved at the same time if the equity in the existing property is providing the mortgage deposit for the new property. This can be challenging and a mortgage broker can help to manage this process.
Simmonds let to buy mortgage broker services

Who is an eligible candidate for let to buy mortgages?

Many let to buy products have a minimum age for borrowers of 25 and a maximum age of 75, although this may vary by lender so ask your mortgage broker for advice.

How much deposit do you need for a let to buy mortgage?

For the new purchase you would typically need a 10% deposit, for the re mortgage of your current home to a Buy to Let you would usually need minimum equity of 25%.

Remember, this deposit comes from the equity in your existing property, although you can also add to the deposit using existing funds to reduce the loan-to-value which could mean you get a better interest rate.

What are the interest rates?

The interest rates tend to be similar to any normal buy to let mortgage or residential mortgage however specialist advice is needed to make sure you chose the right lenders to fit your needs.

Are there early repayment charges for these products?

An early repayment charge may be a feature of any mortgage product so ensure that you check the paperwork carefully and take appropriate mortgage advice.

What are the pros of a let to buy arrangement?

  • The moving process is less stressful as you don’t need to have home viewings and find a buyer.
  • You won’t be stuck in a chain waiting to move so the process is likely to be faster
  • Owning two properties rather than one could increase your wealth if property prices go up

What are the considerations?

  • If house prices fall, you could lose on both properties
  • Let to buy products can be more expensive
  • Having two mortgages to service can be stressful especially if mortgage rates and other costs of living are rising
  • Having a rental property comes with additional responsibilities as a landlord, such as extra certifications, repair and maintenance costs
  • Additional stamp duty and income tax on the rent may be payable, so please seek the right tax advice.

Get the right let to buy mortgage deal for you with Simmonds Mortgage Services

Our experience in providing let to buy mortgage advice ensure you get the most advantageous product to help you keep your existing home while obtaining a new residential property without the stress that usually comes with moving home.

A standard residential mortgage is for borrowers who are living in the property whereas let to buy mortgages are for properties that will be let out.

You will pay stamp duty land tax (SDLT)on the new residential property and this will incur the additional surcharge of 3% for the second property. You can find details of the prevailing SDLT rates on the government website.

It is possible to have an existing buy to let mortgage on a rental property that you already own and take out a let to buy mortgage alongside a new residential mortgage to enable you to move home without selling your existing property. Mortgage providers will check to make sure you can afford all the repayments before offering you any let to buy deals.

Let to buy and buy to let mortgages are often on an interest only basis.

There are fixed rate deals although the rate is likely to be higher than if you were only getting a new residential mortgage.

Mortgage terms on these products are usually the same as other mortgages and will depend on your age at application. The standard mortgage term is usually 20-25 years.

If you are working away for a short period, you could ask your lender for a consent to let arrangement under your existing residential mortgage. Usually letting your property out under residential mortgages will breach the terms and conditions of your mortgage offer so if you are planning to do this, get written permission from your lender. Some lenders will allow you to let your property out for up to 24 months without having to convert to a letting mortgage.

Another option is to take a second charge against your current home which can release cash for the deposit on your new home.

Yes, it is possible to re-mortgage a let to buy mortgage as there are two products.

A let to buy product is more complex than a standard residential mortgage or a regular buy to let mortgage. The application and mortgage offer needs to be coordinated and you may need specialist mortgage advice to arrange a suitable mortgage and find the best deal.

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