Let to buy: is it right for me?
If you’re looking to move house there are a range of reasons why you may want to let out your current property instead of selling it. Perhaps you need to move in a hurry, you’re struggling to sell or you’re worried you won’t get a good sale price in the current market.
Whatever the reason you could find yourself amongst a growing number of ‘let to buy’ landlords in the UK.
How exactly does let to buy work?
Each person’s let to buy arrangement will work slightly differently but broadly it works like this:
Stage 1: Remortgage your current property onto a new mortgage deal. You could do this with your existing lender or a new lender. If you own enough equity in the property remortgaging will allow you to release some money.
Stage 2: The new mortgage will either need to be a buy to let mortgage or you will need to agree consent to let with the lender. You would then let out your existing property to cover your mortgage repayments.
Stage 3: Use the equity you have released or existing savings as a deposit to take out a new mortgage and move into a new house.
Stage 4: Keep letting your existing property until you would like to sell it.
Getting a let to buy mortgage
If you’re only planning to let your property out for a short period of time you may be able to get ‘consent-to-let’ from your existing mortgage lender. Or you may need to take out a buy to let mortgage.
Buy to let mortgages tend to be more expensive than residential loans but rates have become increasingly competitive over recent months. The number of buy to let deals on the market is also growing – there are over 150 more on the market compared to last year,so there is plenty of choice.
You’ll also need to look for a mortgage to purchase your next property too. Providing you have enough equity this shouldn’t be a problem. But, bear in mind the fact that you already have a mortgage may make you seem more risky to lenders. So you may pay a higher rate of interest that someone unencumbered by an existing loan.
Some mortgage lenders such as Clydesdale Bank, Virgin Money, Natwest, Woolwich and Leeds Building Society will sort out both mortgages for you at the same time, which could make life easier. As they are assessing you for both mortgages at the same they are likely to have a better understanding of your circumstances, and you may get a better deal on both products.
Whatever option you choose you should take advice to make sure you’re getting the best buy to let deal and mortgage to purchase your new home.
Let to buy risks
Although let to buy could work well for you there are also a few risks to consider before going ahead.
House prices have remained pretty flat in most parts of the country for the past couple of years – and they’re not expected to increase significantly anytime soon. They could also drop. So there are no guarantees in either the short or long term you will get a better price if you wait to sell your existing property.
Becoming a landlord is also not a decision to be taken lightly. There are financial costs and the impact on your time to consider. You may struggle to get enough rent to cover your mortgage repayments or have problems with your tenants which make it a stressful experience for you.
Before settling on let to buy you could consider whether a bridging loan might be something you could use to help you move house instead.