Let to Buy Myth Busting
Duncan Hodgson joins the Mortgage and Protection Podcast once more, this time to bust some myths surrounding Let to Buy Mortgages.
What exactly is a Let to Buy mortgage?
Let to Buy is a scenario where you own and live in a property and you’d like to buy a new property to live in. The typical approach is to sell your current home and buy a new one. But with Let to Buy, instead of selling your current property, you keep it and let it out.
A let to buy scenario is usually a multiple property transaction – so it actually involves two mortgages: a Buy to Let mortgage on your current home and a new residential mortgage.
What is the difference between Let to Buy and Buy to Let?
The biggest reason for Let to Buy is when someone finds the perfect place to buy, but they just can’t find someone to buy their current home.
As you can imagine they feel stuck and don’t want to miss out on their dream home. Let to Buy can be the solution – you keep hold of your existing property, get a Buy to Let mortgage and a new residential mortgage on the new one.
So the main difference is that Let to Buy is a way to own two properties, one with a Buy to Let mortgage. Buy to Let just describes a mortgage that allows you to rent out a property.
Myth One: Let to Buy is risky
It’s very case dependent. It can be a very good idea to keep hold of your existing property as an investment, if you have the equity in your current property to do so. You will also need personal income to protect you against the risks.
For example, you have bought a new property, are letting your previous one and have two mortgages to pay. The tenant in your current home is covering the costs of your Buy to Let mortgage. Where Let to Buy becomes risky is where you have no tenant, as you’ve got two mortgages to pay.
But as long as you receive the right advice, have some savings to cover you in this situation then it’s no more risky than buying and owning your own home generally.
Myth Two: Getting a Let to Buy mortgage takes ages
This is a myth, but you can see where it comes from as Let to Buy means getting two mortgages. There are two processes to go through. There will be two sets of legal work to go through to make it happen. You’ve doubled the work involved so it stands to reason that it might take a little longer.
In my experience, though, it definitely won’t double the time taken. And in fact, because many people choose Let to Buy as a way to avoid a property chain, it can be a much quicker option.
Myth THREE: The criteria for a Let to Buy mortgage is too extensive
You will have two lots of criteria to fulfil – the Buy to Let criteria for the property that you’re letting out and residential mortgage criteria for the onward property you’re moving to. So, yes, there are more criteria and more hoops to jump through.
But it’s not so extensive that it prevents Let to Buy from being a good idea. When people are looking at any form of multiple property transactions like a Let to Buy, as long as you get good advice, the criteria shouldn’t be a problem.
Myth FOUR: There are no alternatives to Let to Buy
When we’re talking about Let to Buy, we are looking at a scenario where you own a home and want to buy a new one, but you can’t or don’t want to sell your current property. Let to Buy means that a tenant pays for one mortgage, and pays for the new home.
There are alternatives to this approach. You might be lucky enough that you have sufficient income to pay both mortgages without needing a tenant to live in one of your houses.
If you just need more time to sell your first property, a Bridging Loan could be the answer.
There may also be other options, depending on your specific situation – so the best advice is to talk to a broker and work through your goals and how to achieve them.
Myth FIVE: you don’t need a deposit for Let to Buy
This one is true, in some cases. Let’s give you a working example. You own your own home, it’s worth £200,000, and you want to buy a new home to live in at £300,000.
Typically, you need a deposit for the new purchase, which might come from your savings. But with Let to Buy you can actually use the equity in your current house as the deposit for the new property.
To do that, you will need to have paid off a good amount of your £200,000 mortgage to give you enough equity. Again – this will depend on your particular situation, so seek advice on whether this could work for you.
Myth SIX: How much you can borrow depends on how experienced you are as a landlord
This isn’t even close to being correct. Being an experienced landlord is occasionally required by some Buy to Let lenders, but it won’t determine the amount that you can borrow. Your loan amount is either based on your income or how much rent the property will command each month.
Experience as a landlord could expand your choice of lenders, but it won’t have a bearing on how much you can borrow.
How to get advice
Certain lenders are really good with Let to Buy scenarios and actively want to provide those mortgages. Other lenders have great rates, but don’t want to help in Let to Buy scenarios. Don’t assume that your bank will be able to help you. Seek the advice of a broker so that you truly understand your options, and don’t try to tackle this on your own.
We welcome people picking up the phone and making an initial inquiry. We’re very welcoming and will have a no-obligation chat with you to explore what is and isn’t possible. We’d love to hear from you.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.