What is let-to-buy?
The term ‘let-to-buy’ refers to when someone lets out the property they currently live in so that they can purchase a new residential property.
There are a few reasons why you might want to do this. If, for example, you’ve found your dream home and can’t wait to sell your existing property, a let-to-buy arrangement might be suitable.
Alternatively, it might suit those who simply can’t sell their property for the price they are looking for.
Another common reason is that someone wants to keep hold of their existing property as they believe it is a sound long-term investment and would prefer not to sell it.
What does let-to-buy involve?
By changing the use of a property from residential (a property you live in) to buy-to-let (a property you let out), you’ll need to change your existing mortgage to a buy-to-let mortgage and also take out a new residential mortgage on your new home that you will live in.
You cannot live in a property that has a buy-to-let mortgage against it and you can’t rent out a property that has a residential mortgage against it without the lender’s prior consent.
The let-to-buy process is considerably more complex than the process for a standard residential or buy-to-let mortgage, but Which? Mortgage Advisers can offer you advice about a let-to-buy mortgage based on your personal circumstances.
Let-to-buy in 7 steps
1. Value your current property
Find out how much your current property is worth and compare this with your outstanding mortgage balance.
Look at similar properties in your area and their recent sale prices – it’s best to look at three to five properties that have similar characteristics to yours and compare prices.
A local estate agent will also be able to give you an estimate.
2. Research rental income potential
A letting agent will be able to give you an idea of what your property could rent for. It’s best to choose a letting agent who’s registered with ARLA (The Association of Residential Letting Agents).
The amount you can rent your existing property out for has a large bearing on how much you can borrow, so it’s important to get an accurate a figure as possible.
Find out more in our guide to let-to-buy mortgages.
3. Speak to your existing mortgage provider
Your mortgage lender might allow you to move (known as ‘porting’) your existing residential mortgage to your new residential property.
Your existing lender may also allow you to let out your property for a short period, known as ‘consent to let’, meaning there’s no need for you to go through the let-to-buy process.
It makes sense to speak with your existing lender as well as seeking independent advice to ascertain the best course of action.
4. Take independent, professional mortgage advice
Let-to-buy transactions are much more complex than standard residential mortgages or buy-to-let mortgages.
This is because you’re applying for two mortgages at once, both a residential and buy-to-let mortgage and process needs to be managed as a whole to avoid hold ups. An independent mortgage adviser can manage the whole application process for your through to completion.
Here’s an example from our long experience of managing let-to-buy mortgages. We often find that neither lender wants to be the first to approve the mortgage and you can enter a kind of stalemate.
The timing of completion on each mortgage is also key – you cannot complete on the buy-to-let mortgage while you still live in the property without the lender’s consent, so typically it would be necessary to complete each mortgage on the same day.
Which? Mortgage Advisers can advise you on different lenders’ timescales and practices, and be there for you every step of the way up to completion.
5. Check affordability
With let-to-buy, it’s vital that you can afford the payments on both mortgages if your rental property was empty for several months, or if interest rates rise and your repayments increase.
A mortgage adviser will run through these scenarios with you to make sure that you can afford both mortgages, and that you have to capacity to financially absorb periods where you’re receiving no rental income.
6. Be aware of your responsibilities as a landlord
Becoming a landlord is not something to take on lightly and it’s important to do your research beforehand.
You have legal responsibilities to ensure the safety of your property for tenants, and will face more complex income tax rules to ensure you pay the right amount on your rental income.
You can find out more in our dedicated section to buy-to-let.
7. Factor in extra stamp duty
If you’re buying a second property, you’ll pay an extra 3% on top of normal stamp duty costs. Use our stamp duty calculator to find out how much you’ll pay.
You can get this refunded if you sell your older property within 36 months of buying a new one.
You have 12 months after you’ve sold the property to claim a refund, as long as it was sold after 29 October 2018.