Let to Buy Mortgages
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Let to Buy Mortgages
Mark Notley from Total Home Loans joins the Mortgage & Protection Podcast to talk about Let to Buy mortgages.
What is a Let to Buy mortgage and how do they work?
Let to Buy is generally where a person owns a property that for various reasons they don’t want to sell. Instead, they want to let it out and move into another property.
Who can get a Let to Buy mortgage?
The first requirement is to already own a property. With a Let to Buy you are using the income you receive from the rent to offset the cost of that property – i.e. your mortgage payments.
Then your new mortgage can progress while ignoring that liability in the background. Let to Buy basically gives you more borrowing power going forward.
Even if you don’t have a mortgage on your existing property, there are still costs involved, whether you let it out to tenants or just have it as a second home. The letting income will offset those costs and give you better borrowing power for your new property.
How much deposit do I need for a Let to Buy mortgage?
This is one of the advantages of Let to Buy – you don’t need any deposit as you can use the equity you have in your current property. You can essentially borrow up to 75% of the equity in that home.
While no deposit is required, there are limits relating to the potential rental income. You will need to get a letting agent to assess the rental value of your property.
The lender will calculate your potential loan amount based on the equity in your property and that expected rental income.
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What criteria do I need to meet for a Let to Buy mortgage?
First, you need to own a property with some equity. You will also need to confirm that you have a regular income apart from the rental income – either as employed or self-employed.
The value of the property will also have to be sufficient to borrow the amount that you want. If you meet these requirements, you should be able to get approval for a Let to Buy.
What are the pros and cons of a Let to Buy mortgage?
The big pro is capital growth. We’re in a property market where values are increasing all the time, so having two properties is a great investment. If you retain a property through Let to Buy, then you can maximise the potential for that property value continuing to grow. And in the meantime you’re letting it out, so someone else is paying the mortgage for you.
Property values can fall as well as rise and past growth is no guarantee that property will always rise.
In addition you could switch that mortgage to interest-only (however, this would need repaying, and will reduce the amount received on the sale of the house). This means lower mortgage payments and a larger rental income coming in. So not only will you potentially benefit from capital growth, you’ll also receive rental income.
The main downside is that you will have higher costs. There will be letting costs if you use an agency as well as maintenance costs on two properties. It can be expensive if your property doesn’t have a tenant for a while. There could also be higher Stamp Duty costs, as a second property is liable for additional duty, as well as the potential for Capital Gains Tax.
It is helpful to speak to a broker about your situation for you and let them explain various scenarios and work out what will work best for you.
What are the alternatives to Let to Buy?
The main alternative is not to let your existing property but sell it to discharge any mortgage you have on it. That may then increase then any deposit for the property you’re buying and you should have less stamp duty to pay too.
How can a Mortgage Broker help?
Let to Buy can buy can be a little tricky. Many lenders have little rules and criteria that are hard to get past. It is definitely worth speaking to a broker – let us run through the pitfalls with you. We’re here to find a solution that works for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.The Financial Conduct Authority does not regulate some Let to Buy Mortgages.
Total Home Loans Limited is an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. Quilter Mortgage Planning Limited is entered on the FCA Register (https://register.fca.org.uk/s/) under reference 440718
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The guidance and/or information contained within this website is subject to UK regulatory regime and is targeted at consumers based in the UK.
Your home may be repossessed if you do not keep up repayments on your mortgage.