Let-to-Buy Mortgages

Buying a new home is always exciting, but sometimes you don't want to sell your current one. Maybe you've got your eye on a dream property, but your old place hasn’t sold yet. Or perhaps it's a family home with sentimental value that you want to hold onto. Whatever the reason, a let-to-buy mortgage arrangement is a clever way to keep your existing property and use it as an investment to help you move on.

We’ll walk you through everything you need to know about Let-to-Buy mortgages, from how they work to the key differences between them and a standard Buy to Let. By the end, you’ll have a clear, confident understanding of whether this option is right for your next big move.

What Is a Let-to-Buy Mortgage?

A Let-to-Buy mortgage is a financial arrangement that allows you to buy a new home to live in while simultaneously converting the mortgage on your current home into a buy-to-let mortgage. This means you can rent out your old place to tenants and use the rental income to cover the mortgage repayments.

It's a two-part solution:

1. You remortgage your current home and move from residential mortgage terms onto a buy-to-let mortgage

2. You get a new residential mortgage for the home you want to move into.

This is a great option for homeowners who have built up a good amount of equity in their current property. You can unlock some of this equity to use as a deposit for your new home while keeping the old property as a long-term investment.

How Does a Let-to-Buy Mortgage Work?

Think of it as juggling two balls at once. You have two separate mortgages that need to be arranged, often at the same time. The first is for the property you're renting out, and the second is for the one you're moving into.

The process usually looks like this:

1. Remortgage your existing home: You'll need to apply for a buy-to-let mortgage on your current property. This mortgage will be based on the rental income the property is expected to generate, not your personal salary. Lenders typically want the rental income to cover between 125% and 145% of the mortgage payments.

2. Raise a deposit for the new home: The equity you've built up in your current property can be used as the deposit for your new residential mortgage. For example, if your old home is worth £250,000 and you have £150,000 left on your mortgage, you have £100,000 in equity. A lender might allow you to remortgage your old home up to 75% loan-to-value (£187,500), releasing £37,500 (£187,500 - £150,000) in cash to use as a deposit on your new home.

3. Apply for a new residential mortgage: Once you have a deposit, you apply for a standard residential mortgage for the property you plan to buy and live in. The affordability criteria for this mortgage will be based on your personal income and outgoings, with the buy-to-let mortgage repayments on your old property also included as an additional expense.

It's a more complex process than a standard house move, but it's a practical way to become a landlord without having to scrape together a deposit from scratch.

In some circumstances, you can use one mortgage lender for both mortgage transactions, which should keep things pretty straightforward. However, using different lenders for each transaction could work out cheaper overall if one is offering a better mortgage deal. 

This is where using the services of an experienced mortgage broker can make all the difference. They would know which mortgage lenders can help with let-to-buy arrangements and who is offering the most competitive deals. 

Let-to-Buy Vs. Buy to Let: What's the Difference?

They sound similar, but they're for completely different situations. Knowing the difference is key.

The main difference is the starting point. A Let-to-Buy mortgage is for an existing homeowner who wants to make a new residential purchase, whereas a Buy-to-Let mortgage is for an investor looking to add to their property portfolio.

Who Is a Let-to-Buy Mortgage For?

A Let-to-Buy mortgage is designed for people who are ready to move but not ready to sell. It's a great fit if you can tick any of these boxes:

• Struggling to sell: You’ve found your next home, but your current property is taking too long to sell in a slow market. A Let-to-Buy arrangement allows you to become a "chain-free" buyer, which can be a significant advantage when negotiating for a new property.

• Sentimental value: You love your current home and want to keep it in the family for the long term.

• Accidental landlord: You’re relocating for work and don’t want to lose your home. Rather than selling, you'd rather rent it out until you move back.

• Couples moving in together: You and your partner are moving in together, but one (or both) of you wants to keep your existing home as a long-term investment.

How Much Can You Borrow with a Let-to-Buy Mortgage?

This is the part that can get a little tricky, because there are two loans involved. The amount you can borrow for each is assessed differently.

For the Let-to-Buy Mortgage (on Your Old Home)

Lenders will mainly focus on the expected rental income of the property. They'll ask for a rental valuation from an ARLA-registered letting agent to confirm that the rent covers the mortgage repayments by a sufficient margin—usually between 125% and 145%. Some lenders might also have a minimum income requirement for you, typically around £25,000, to prove you can cover any periods without tenants.

Use our buy-to-let mortgage calculator to see how this could work out for you, based on the estimated rental income for your current property.

For the New Residential Mortgage (on Your New Home)

This part of the application works like a standard mortgage. Lenders will look at your personal income, outgoings (including the new Let-to-Buy mortgage repayments!), your credit history, and your deposit size. As a rough guide, you can usually borrow between 4.5 and 5 times your annual salary.

To see how this might work out for you, based on your annual income, take a look at our quick and easy-to-use mortgage affordability calculator. 

You can also use our mortgage repayment calculator below to see what the amount you're looking to borrow could cost you each month and check if this fits with your budget.

How to Get a Let-to-Buy Mortgage

Getting a Let-to-Buy mortgage involves a few more steps compared to a standard residential mortgage, and can be slightly more complex. However, with the right support, the process can be made to feel more straightforward. Here's a step-by-step guide to what you should expect:

1. Assess your equity: You’ll need to work out how much equity you have in your current property. This will be the difference between the property’s value and your current mortgage balance.

2. Find a new property: Once you know how much equity you can release, you can use that amount to work out what kind of deposit you have for your new home, and the value of properties that fit into your budget.

3. Speak to a mortgage broker: Highly recommended for this type of purchase. A broker who understands how let-to-buy mortgage arrangements work (like us!) will know which lenders can help and can guide you through the entire application process from start to finish.

4. Get a mortgage in principle (MIP): This is a statement from a lender that gives you an estimate of what they might lend you on both your residential and buy-to-let mortgages.

5. Make an offer on your new property: Once you’ve found the right home, make an offer. Being a chain-free buyer should put you in a strong position. 

6. Submit your mortgage application: Once your offer is accepted, you can submit your applications for both mortgages. This is where your broker becomes your best ally, helping you gather all the necessary documents and monitoring each application’s progress throughout all the separate stages.

7. Receive your mortgage offer and complete the sale: Once the lenders have approved all their valuations and legal checks, you'll get your mortgage offers, and a completion date can be set.

Is Let to Buy a Good Idea?

A let-to-buy mortgage can be an extremely useful financial arrangement, but it's essential to weigh the benefits against the drawbacks before proceeding.

Why It's Great

• You don’t have to sell: You get to keep your old home as a long-term asset, which could benefit from future house price rises.

• New income stream: The rent from your old home provides a monthly income that can help cover the mortgage payments and potentially boost your overall earnings.

• Greater flexibility: You can buy a new home without the pressure of having to sell your old one first.

• Become a chain-free buyer: This gives you a serious advantage in a competitive market and can make your offer more attractive to sellers.

What to Watch Out For

• Two mortgages: You'll have two loans to pay and twice the responsibility, which can feel daunting.

• Higher interest rates: Buy-to-let mortgages are typically more expensive than residential mortgages.

• Additional costs: As a landlord, you'll need to budget for maintenance, repairs, landlord insurance, and potential periods with no tenants (known as 'void periods').

• Stamp Duty surcharge: Because you own two properties, you will be liable to pay a 3% stamp duty surcharge on the purchase price of your new home. This can be reclaimed if you sell your old home within 36 months.

• Higher tax bill: You'll have to pay income tax on the profit you earn from the rental premiums, and there could potentially be a Capital Gains Tax (CGT) liability when you eventually come to sell the rental property. 

What Are the Alternatives?

If a let-to-buy mortgage doesn't feel like the right fit for your circumstances, there are other options available:

• Sell your current home: The most common option is simply to sell your old home to help fund the deposit for your new one. This keeps things simple and means you only have one mortgage to worry about.

• Consent to let: If your move is only temporary (e.g., for a new job) and you have a good relationship with your current lender, they may grant you ‘consent to let’. This is a short-term agreement that allows you to rent your property out on your existing mortgage, often with a small fee or a slight increase in your interest rate. It's usually only a temporary solution, though.

• Second charge mortgage*: You could take out a second charge mortgage against your existing property to raise a deposit for your new one. This would be a completely separate loan, and you'd have two sets of repayments to make on your old home.

*This service is offered by referral to a third party