Let to Buy Mortgages: The Genius Guide

Let to Buy transactions are great for existing homeowners looking to up-size into a new home whilst retaining your current home. A “Let to Buy” transaction is made up of two transactions, usually a buy-to-let remortgage and a residential purchase.

Not every lender offers the facility to do let to buy transactions, so we always recommend liaising with an adviser. Since the The Mortgage Credit Directive, effective 21st March 2016, introduces a legislative framework for consumer buy to let. This legislation aims to bring tougher application and affordability requirements.

How does it work?

As mentioned, it involved two transactions meaning two simultaneous applications to the same lender or even two different lenders.

In many scenarios, borrowers wish to use the existing equity within their current home to provide a deposit for the new property.

If you’re not planning to use any equity from your existing home to fund part or all the deposit, it may be worth speaking to your existing lender first and request a “consent to let”. You will require permission from your lender to let out the property.

What if I want to let my property but not purchasing a new home?

Lenders who offer “Let-to-Buys” are a smaller segment of the overall market. If you’re not looking to buy a new home, this is referred to as a “Let-to-Move”, there will be lenders available however the number of lenders available to you will be heavily restricted meaning potentially higher costs.

Do lenders have additional requirements?

Residential purchase mortgage application

If part of your deposit is coming from your existing home, the lender will require to see your proof of deposit. Most residential lenders are typically happy with an ESIS (mortgage illustration) along with your latest mortgage statement, this will allow lenders to assess your proof of deposit with ease.

Buy-to-let remortgage application

This can be a little bit complex as in most scenarios, lenders will not give you a formal mortgage offer until they have sight of your residential purchase mortgage offer.

Most lenders will require a simultaneous completion meaning your solicitor can only complete on both transactions on the same day so ensure you plan your dates carefully and liaise with your mortgage adviser and solicitor closely.

Should I be concerned with any additional costs?

Apart from the usual costs of maintaining and operating your property whilst it’s being let, purchasing a second home means you’ll be liable for an additional 3% stamp duty cost on your new purchase.

Can you give us a real-life example?

Of course!

Jack and Dina currently live in a 1-bedroom home and are planning to up-size their home as they’re looking to start a family, they’ve been living in their current residential home for a few years and paid down a portion of their mortgage whilst also benefitting from an increase in the value of their home.

Residential purchase.

They’ve found a 3-bedroom home for £230,000 and have £30,000 cash deposit available. Their residential mortgage lender will lend £180,000 meaning there is a £20,000 shortfall. Bearing in mind they still have additional stamp duty costs to be paying on top of this.

Buy-to-let remortgage

Their existing home is worth £150,000 and they currently have £75,000 outstanding on the mortgage. They can look to raise a 75% LTV BTL remortgage for a loan of £112,500 (subject to buy-to-let affordability). This means a capital raise of £37,500; meaning £20,000 of this can be allocated to the new deposit to cover the shortfall, leaving a £17,500 surplus available for stamp duty and lots of new furniture!

Jack and Dina spoke to an adviser prior to house hunting to find out how much capital they can withdraw from their existing home and how much they can borrow on their new residential mortgage. They submitted both applications simultaneously and liaised with their adviser, solicitor, and agent closely to ensure both applications timeframes fitted to ensure a smooth completion!

What if I want to transfer my existing property into a limited company?

This is possible however instead of a buy-to-let remortgage, you would mean the following:

- Your personal entity would sell the property to the limited company, seek advice from a tax adviser regarding any potential capital gains tax and additional legal fees when it comes to selling the property.

- Your limited company will purchase your property from your personal entity therefore triggering additional stamp duty costs so ensure you factor these costs into your figures.

If you’d like to learn more about limited company mortgages, we have a great guide to help!

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Some Let to Buy and buy to let mortgages are not regulated by the Financial Conduct Authority