Let to buy is a scenario rather than an actual mortgage product. It’s where you remortgage your existing home onto a buy-to-let basis, often releasing additional equity from it at the same time which you can then use as a deposit on a new home.
Let-to-Buy is a scenario rather than an actual mortgage product. It’s where you remortgage your existing home onto a buy-to-let basis, often releasing additional equity from it at the same time which you can then use as a deposit on a new home.
In this scenario, you take out 2 mortgages: a Buy-to-Let remortgage on your existing property and a residential mortgage on your new home.
How the Buy-to-Let Remortgage Works
You remortgage your existing property onto a Buy-to-Let basis so that you’ll be able to rent it out to tenants. It’s common to release additional equity from your property by remortgaging for an amount greater than your current outstanding mortgage balance. You can then use this money – along with any savings – as a deposit on your new home.
How the Residential Mortgage Works
The residential mortgage on the new property is pretty straightforward. The lender assesses your income to work out how much you can borrow. The main difference is that they also have to consider how your buy-to-let remortgage will affect your cash flow when calculating what you can afford. Nonetheless, since the buy-to-let remortgage should be covered by the proposed rental income, it will almost certainly be excluded by the lender in the underwriting process for the residential mortgage application.
The Buy-to-Let and residential mortgage rates available in this scenario are typically the same as the rates available in a standalone Buy-to-Let remortgage or residential purchase.
However, it’s worth noting that Buy-to-Let rates tends to be higher than residential mortgage rates.
Keep reading to find information on the process and for answers to some of your main FAQ’s.
You can also learn about the different types of mortgages and interest rates in our guide.
The minimum deposit you’ll need for the Buy-to-Let remortgage is 25% and the minimum deposit you’ll normally have to put down for the residential mortgage is 10%, although most people in this scenario are able to put down a bigger deposit as they’ve usually built up more equity in their existing property. The bigger your deposit, the better the products you’ll have access to.
You would pay normal Stamp Duty plus Additional Stamp Duty on the new property, even though it’ll be your new home. This is because it’s technically your second property.
You should be able to claim back the Additional Stamp Duty if you sell your original main residence within 3 years of completing the purchase of your new home.
You can take out a Buy-to-Let mortgage up to 75% LTV (loan-to-value) when remortgaging your existing property onto a Buy-to-Let basis. This is simply because that’s the standard maximum LTV for a Buy-to-Let.
The maximum LTV for the purchase mortgage – i.e. the one on your new home – would be subject to an affordability calculation on your monthly earned income. The typical maximum LTV for most residential mortgages in a let to buy scenario is 90%.
As you take out a Buy-to-Let remortgage and a residential mortgage when you Let-to-Buy, most lenders who already offer these mortgages will be able to assist you. The best lenders and products for you will depend on your situation and needs.
It’s worth noting that you don’t have to use the same lender for both mortgages. As an experienced mortgage broker we have access to all kinds of products, making it easier for you to secure the deals that best suit your needs.
Here’s how an expert mortgage broker like The Residential Mortgage Hub can help you:
- We make a complicated situation easy – Simultaneous remortgage and purchase transactions are required, so it’s a lot easier to have a mortgage broker like The Residential Mortgage Hub arrange it all for you
- Our experts can identify the best Let-to-Buy deals for your situation – there are a variety of rental calculations for Buy-to-Let mortgages on the market that are used by different lenders, which can make it harder for you to identify the best deal for your unique needs. We already know how these calculations work, making your journey to the right deal a lot clearer
- Your adviser will explain all your options, some of which you may not have considered – for example, we can guide you through the benefits of taking out a Buy-to-Let mortgage through a limited company and refer you to an accountant for setup advice