So you have found your forever home. It’s got those bi-fold doors opening up to a Juliet balcony and a sizeable amount of outside space that make it a . Good times. There’s a catch, though. You haven’t sold your current house and need to find a buyer before getting the keys to your dream pad. Bad times.
All is not lost, however. And we’ve got first-hand experience of someone completing the move to their perfect place without selling their current home. What did they do? They used a let-to-buy mortgage to rent out their house while simultaneously buying their new one.
Now, if you’re wondering what a let-to-buy mortgage is or how it works, worry not. In this article, we’re detailing everything you need to know about let-to-buy mortgages and how they can help you move without worrying about selling your home.
What is let-to-buy?
A let-to-buy mortgage isn’t a buy-to-let mortgage, but there is cross-over. Confused? Allow us to explain. A buy-to-let mortgage is typically used by property investors who purchase investment homes and rent them out.
Let-to-buy is different, in that it involves renting out your existing house with the sole intention of purchasing a new one to live in. There is also the added bonus of having a second income stream in the form of rent. With tenants moving into your old home, you could increase your earnings significantly.
Getting a let-to-buy requires having two mortgages, converting your existing mortgage into a buy-to-let mortgage and taking out a residential mortgage on your new place.
Should I get two mortgages?
Ok, so having two mortgages doesn’t sound ideal at first. But it’s really not that bad. A buy-to-let mortgage is often provided on an interest-only rate, with you paying the interest off while the initial borrowing remains in place.
Therefore, if a mortgage is £150,000, you only pay the interest. This means your monthly repayments are much lower, plus you have the added bonus of receiving regular rental income, which should easily cover the let-to-buy and some of your residential mortgage.
Therefore, any risks involved with having two mortgages are mitigated by regular rental income and lower repayments on the let-to-buy mortgage. Then, when the time comes to sell your home, you pay back the entirety of the mortgage with the funds from the sale.
Why should I get a let-to-buy mortgage?
The primary reason for getting a let-to-buy mortgage is because you can’t sell your home but want to move into another one. Market conditions may dictate a scenario where it’s hard to find a buyer, but you don’t want that to stop you from moving.
Your current home probably has a fair amount of equity, and you would like to release it to purchase your next house with a let-to-buy mortgage. You can also potentially maximise your long-term investment by keeping your current property, as it yields a rental income and grows in capital appreciation.
What are the let-to-buy lending criteria?
You have weighed up the options, and let-to-buy is looking like the smart choice. Before you can go ahead and get a let-to-buy mortgage, however, first you will need to meet the lending criteria. Whereas residential mortgages are based on how much you earn, let-to-buy is slightly different in how it works.
Your eligibility is based on the amount of rental income your current home can achieve. How much you can borrow is often capped at 75%-80% of the property’s value, and you will need proof that the rental income will be higher than the mortgage – in most cases, lenders ask for the rent to cover 145% of the monthly mortgage repayment.
You will also need to prove that you are buying a new home at the same time as changing your mortgage to let-to-buy. Finally, in most cases, you’ll need to use the same solicitor for both transactions. The maximum age cap for let-to-buy mortgages is between 70 and 75.
Should I use a broker for a let-to-buy mortgage?
Let-to-buy mortgages can be helpful for people who want to move into a new home, but they’re more complicated than a regular residential mortgage. Therefore, it’s highly recommended that you use a broker when exploring let-to-buy mortgage options.
There are lots of moving parts, and there will be more than one mortgage involved. Using a broker means you can have one person who manages the whole process, which will make things that little bit easier for you.
Brokers can also give you access to more lending options, as let-to-buy mortgages aren’t that common on the market. Without a broker, you could limit the choices available when it comes to finding the right let-to-buy mortgage for you.
Emoov’s let-to-buy case study
We’ve already had previous experience of finding the perfect let-to-buy mortgage for a homeowner. Jennifer O’Malley was unable to sell her house but had already identified her dream home. Not wanting to lose out on a place she had fallen in love with, Jennifer approached our mortgage brokers for advice.
We looked at her situation and recommended a let-to-buy mortgage based on her requirements. Eight weeks later, and after managing the whole process for Jennifer, she moved into her new home while simultaneously renting out her previous property.
“I was desperate not to lose out on my dream home. But market conditions in my area made achieving a fast sale tricky. So I contacted Emoov and asked them about my options. I hadn’t even heard of let-to-buy mortgages before, but after speaking to a broker, I realised that it was the right option for me.
“The whole process was seamless, and Emoov were clear and transparent about everything involved. Now I live in my dream property and receive regular rental income that more than covers the mortgage on my old place. I couldn’t be happier.”
Letting to buy your dream home
If you’re in a position where you want to move home but can’t find a buyer, a let-to-buy mortgage could be the right option for you. If you’d like to know more information, , who will be happy to talk you through the options available.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Mashroom Mortgages is a trading name of Emash Ltd which is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority. Emash Ltd. Registered Office: 21 Navigation Business Village Navigation Way, Ashton-On-Ribble, Preston, Lancashire, England, PR2 2YP. Registered in England Number: 11735831.