A let-to-buy is a type of re-mortgage product. It enables homeowners to convert their residential home into a property to let whilst simultaneously purchasing a new residential. As explained in our buy-to-let article, maximum loans are not based on the borrower’s income. Instead, for properties to let, they are based on the monthly rental assessment of the property. As mortgages for properties to let are unregulated, the criteria for their affordability is more lenient than other residential mortgages. To emphasise this point, there are numerous lenders that have a “no minimum income” criteria for buy-to-let mortgages. Therefore, for such lenders, your personal income is irrelevant to their affordability calculations.
The reason why the let-to-buy product is popular is because lenders tend to require borrowers to own a residential property before they will lend for a property to let. Therefore, as the let-to-buy process is simultaneous, a let-to-buy mortgage product increases a borrower’s access to mortgage lenders.
A let-to-buy has many benefits. Firstly, applicants can forgo any costs associated with sale of a property. These costs are often derived from the marketing conducted by estate agents. In the present housing market, due to house price stagnation, many homeowners are not realising the full value of their property. If they sell, it is currently often at a discounted price. Let-to-buy provides a solution to homeowners in the predicament. Through re-mortgaging, homeowners can raise equity in their home to use as a deposit on their new residential purchase. The most significant benefit of let-to-buy is that, upon completion, the homeowner will expect to receive rental income and equity appreciation.
However, there is a significant drawback of let-to-buy. This drawback is its impact on the buyer’s Stamp Duty Land Tax (SDLT) liability. The higher tax banding for SDLT is often only payable on buy-to-let or second home purchases. However, because SDLT is only payable on purchases, it cannot be charged to the property that is being converted to let. Therefore, the higher tier of SDLT is passed to the entire purchase price of your new residential home.
If you are interested in a let-to-buy mortgage, our advisers would be happy to provide a free consultation. We recommend that you click the ‘Contact Us‘ button and submit a mortgage enquiry.