A Let to Buy mortgage is a popular choice for people who aren’t ready to sell their home or want to become a landlord.
If you aren’t intending to sell your current property, but still want to get a mortgage for a new home, you would need an alternative method of raising the capital for the new deposit. A Let to Buy mortgage means remortgaging your old property and extracting some of the equity from that property to fund a mortgage on the new house. You can then rent out the old home and use that income to pay the mortgage. If this is something you are considering, then make sure you know what you’re getting into, both the good and bad!
Advantages of Let to Buy
Let to Buy mortgages have the potential to be very lucrative. If a buyer can secure the Let to Buy mortgage, they could benefit from added income from rent while also building equity in two properties instead of one. Once these properties are paid off, they will become valuable assets for inheritance or resale.
There might be a good reason you don’t want to sell your current home yet. The property value in the area could have taken a dramatic turn for the worse, so selling the property could mean losing money. You might intend to return to the property someday – or at least keep that option open – such as if you have to move away for work. A Let to Buy mortgage means you still own the old house, so you have the option to move back in should you want to.
Or it might simply be a great business opportunity due to profitable rental rates in the area, of which a savvy prospective landlord should want to take advantage. Whatever your reason, the potential rewards for Let to Buy mortgages make them a great choice for anyone looking to increase their income and build up their property portfolio.
Disadvantages of Let to Buy
An excited buyer might be thinking, ‘This sounds great! But why do I need a Let to Buy mortgage when it sounds like I could just remortgage my property and rent it out?’ Sadly, with most residential mortgages, you cannot rent out your property, which is why a Let to Buy mortgage is necessary. These mortgages tend to be more expensive and demand a much higher deposit from the buyer, often around 25%. With such a high deposit requirement for the Let to Buy mortgage, it can be difficult to simultaneously gather enough capital for the deposit on the new home.
If a buyer hasn’t gained enough equity from their property, affording a mortgage can get even harder. This could have happened because they haven’t paid enough of their mortgage back (meaning Let to Buy mortgages are better suited to people who have been property owners for some time already) or because the value of the property has dropped, which could lower the equity or even put it in negative figures.
It’s worth noting that the Let to Buy deals from lenders are based on the expected rental income, rather than salary income. Lenders expect the rent to cover the mortgage, but also need plenty of leeway for unexpected expenses, such as maintenance costs or gaps in tenancy. For this reason, they usually require the expected rental income to be around 125% of the mortgage.
Finally, the updated stamp duty tax means that buyers need to pay an additional 3% of the value of the property, which can make a considerable dent in your savings. On the plus side, if the property is sold within 36 months, the stamp duty tax can be retrieved.
Whether or not a Let to Buy mortgage is appropriate depends on individual situations. They can be expensive and risky, but if the circumstances are right and the buyer has the right guidance, the rewards could be very lucrative. If you’re interested in learning more about Let to Buy mortgages, please don’t hesitate to get in touch. We would be happy to look at your eligibility and, should you wish, we can find you the best mortgage deal tailored specifically for you. Click here to get to our contact page.