Let-to-buy is the procedure of renting out your current home and buying a new one to live in. This might involve having two mortgages at the same time: you would have to convert your existing mortgage into a buy-to-let mortgage in order to let out your current home, then take out a standard residential mortgage for the home you plan on buying.
There is a lot to think about when doing this as there are many potential complications, including the costs and responsibilities of becoming a landlord and taking on two mortgages.
Conveyancing Expert are an experienced and professional Conveyancing Solicitors based in Manchester. Our Quality conveyancing services cover as all aspects of residential and commercial conveyancing.
Is Let To Buy A Good Idea?
Let-to-buy could be suitable for homeowners in the following situations:
- You want to use the equity built up in your home to move to a new one, while keeping the existing home as a long-term investment.
- Those in a hurry to move to a new home and can’t wait to sell your current property.
- Homeowners struggling to sell their property.
- People wanting to buy a property with a partner but to still own their current home.
- Those moving elsewhere short term but plan on moving back.
Let to buy and buy to let are two different things. When you buy to let, you’re purchasing a property to rent out, whereas with let-to-buy you’re buying a new property to live in yourself and renting out your current home.
Let To Buy And Mortgages
You cannot simply rent out your home and buy another one without first switching your mortgage. Owning a rental property with a residential mortgage will most likely breach the terms of your home loan. You will need to convert your residential mortgage into a buy-to-let deal (or obtain consent to let from your current lender).
This isn’t always straightforward as buy-to-let mortgages are often interest-only and rates are usually higher than on residential loans. If you wish to release equity from your current property to use as a deposit on your new one, this can add further complications: your existing lender may allow you to switch to a buy-to-let deal but this will rely on your finances being reassessed all over again, this time based on buy-to-let criteria.
If this is not possible with your current provider, you could try to re-mortgage with another lender. Look out for early repayment charges though.
Some lenders offer specialist let-to-buy mortgages, which take some of the complications away. The criteria for Let-to-buy mortgages will include how much rental income you can bring in from the property you’re letting out, rather than how much you earn.
Specialist let-to-buy mortgages are available from just a few providers and these will have different requirements including:
- A borrowing limit of 75%-80% of the value of your current home – if you want to release equity when re-mortgaging you’ll need to factor this into your calculations.
- Proof that you’ll bring in higher rent than your mortgage repayments: lenders usually require rent to cover around 145% of monthly repayments.
- Proof that you’re buying a new home at the same time as switching your mortgage: such as a mortgage offer for your new home.
- That you use the same solicitor for both transactions: this isn’t always required but is by some lenders. Maximum age: 70 or 75, usually.
Conveyancing Expert are an experienced and professional Conveyancing Solicitors based in Manchester. Our Quality conveyancing services include conveyancing on re-mortgages as well as all other aspects of residential conveyancing.
Let To Buy Advice
Let-to-buy has lots of variables and therefore, a lot can go wrong. It is highly recommended that you speak to one of our conveyancing experts to seek advice on your options from one of our conveyancing solicitors who are based in Manchester. We will help you from start to finish, helping to ensure you can complete in a timely manner with all legal aspects of the transaction completely watertight. Finally, many buy-to-let mortgages are only available through brokers rather than directly from lenders, so a broker may be able to access deals you won’t be able to get on the high street.
Conveyancing Expert are an experienced and professional Conveyancing Solicitors based in Manchester and can offer advice on let to buy transactions. Get in touch today to discuss our Quality conveyancing services and all aspects of your residential or commercial conveyancing needs.
Let To Buy And Stamp Duty
When buying your new property, you will have to pay a 3% buy-to-let stamp duty surcharge which can add thousands to bill so it’s hugely important to budget for this. The surcharge is applied because you will be buying a second home (even though it’s one you’ll be living in yourself). If you sell your original property (the one you’re renting out) within three years, you can claim the difference between what you paid and the normal home mover rates back.
Other Costs
Buy-to-let isn’t always as viable as it sounds, so it’s important to ensure letting to buy is a sensible and cost-effective decision. As well as bringing in more than enough rent to cover the mortgage payments, you’ll need to contend with the costs of managing the tenancy. This could include employing a letting agent if you don’t plan on taking on the responsibility yourself.
Finding tenants can be particularly costly for landlords, especially since the introduction of the tenant fees ban in June 2019. You’ll also have to file tax returns each year for your rental income through self-assessment. There are further considerations in this area for landlords, as the government is currently reducing how much mortgage interest can be claimed against your tax bill.
Are There Any Alternatives?
If you are struggling to sell your home but are not in a mad rush to do so, one option is to stay put for now and see what happens with the property market after Brexit.
With rates very low at the moment, it can be a financial benefit for homeowners to fund renovations or home improvements by re-mortgaging, rather than by taking out a personal loan. Not all improvements will succeed in adding value to your property, however, so it’s important to weigh up the pros and cons and develop an understanding of your local property market before spending extra money on your home.
Always Seek Legal Advice
We always recommend using a conveyancing expert to carry out the let to buy legal process on your behalf. Our quality conveyancing services will see you from start to finish: we deliver an excellent and efficient service to ensure your property transaction is completed with expert legal advice and service.