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What is Let-to-buy?
Renting out your current home and purchasing a new one to live in is known as “let-to-buy.”
Your present mortgage will be converted to a let-to-buy mortgage and a new mortgage will be obtained for the home to which you’re relocating. All of this occurs simultaneously.
Your former property is then rented out, and the rent pays down the let-to-buy mortgage, allowing you to utilize your earnings to pay off your new housing mortgage.
How it Works
You’ll need to apply for two new mortgages with a let-to-buy mortgage:
- A let-to-buy mortgage will be used to replace your present residential mortgage.
- A new residential mortgage for the house you wish to relocate to. This will most likely be with the same lender specializing in let-to-buy mortgage options, but it might also be with two separate lenders.
Let-to-buy mortgage lenders enable you to raise the down payment for your future home by taking out additional loans that are not counted as an obligation against your present mortgage.
Once remortgaged as a buy-to-let property, the predicted rental income must cover the repayments, and you must still have enough equity in your home to fulfill your creditor’s minimum buy-to-let loan to value (LTV) ratio.
Let-to-buy mortgages require that the rent you get from your prior house be adequate to pay the loan comfortably.
A let-to-buy mortgage’s lending requirements
Each lender will have its own set of lending requirements, as with all mortgages, but the majority will need:
- After any further borrowing for a deposit on your future property, you must have at least 25% equity in the home you’re taking out the let-to-buy on (so 75 percent loan-to-value)
- An age limit to completely repay the mortgage, such as 60 years old.
- Evidence showing you are purchasing a second house at the same time.
- Evidence indicating you intend to rent out your present home rather than sell it.
- A rough estimate of how much rent you’re likely to get, such as estimates from estate agencies
Pros and Cons
If you’re interested in Tarleton state university housing and are planning on exploring let-to-buy as an option, it would be advisable to consider both the benefits and drawbacks of this arrangement before making a final decision.
Pros:
- Due to lender restrictions for both kinds of loans, it might be challenging to arrange a buy-to-let mortgage for the house you now live in a while also obtaining a residential mortgage for your future home. – let-to-buy makes this procedure easier.
- It alleviates the pressure to sell fast and at a loss.
- You’ll end up with two homes, increasing your profits if property values rise in the future.
- You’ll end up with two homes, increasing your profits if property values rise in the future.
Cons:
- Owning two houses is risky in that if property prices decline, you will incur greater losses.
- Rates for let-to-buy are often higher than rates for residential mortgages.
- Because only a few lenders offer let-to-buy programs, you will have fewer options.
- You’ll also be servicing two mortgages, which might strain your budget if you don’t sell your prior property promptly.
- Purchasing a second home will almost certainly result in a significant stamp duty charge, albeit the extra 3% will be repaid if you sell one of them within three years.
Who is let-to-buy appropriate for?
Let-to-buy is ideal for those who wish to relocate but do not want to sell their current house. There are many reasons why staying in your current house is a good decision:
- You want to return to your house someday.
- Your residence relocation is simply temporary.
- You can’t sell your current house.
- You’d like to keep your house as an investment.
Because real estate may be an excellent long-term investment, you may not want to sell your property. Instead, most people will sell their houses to utilize the proceeds to finance their next purchase. A let-to-buy mortgage is an excellent option if you don’t need to sell before purchasing.
Final Thoughts
If you’re okay with having two mortgages, can handle the payments, and don’t mind being a landlord, a let-to-buy mortgage may be the best option for you when it comes to relocating. But it’s wise to consult with financial professionals before making a final choice.
