Letting to Buy
Let to buy is an increasingly popular option for homeowners. The principle is very straightforward – moving into a new home and, rather than selling, retaining the current residence and letting it out.
The mortgage on the original property switches to buy-to-let terms (typically interest only, since it can be sold to repay the loan in due course, and needing rent to cover the payments with a healthy surplus), and where there’s sufficient equity in the property many raise additional funds to use as the deposit for their new home.
It’s attractive as a way of keeping hold of the existing home as both a long-term asset and an extra source of income. It’s also a good method of bringing diversity to any existing savings & investment plans, especially with an eye to the longer term, for relatively little up-front cost.
Letting to buy can work very well for couples moving in together where both already own a property, but is also a way of moving up the property ladder for people struggling to sell (or, more likely, sell at an acceptable price) their house in the current market.
For this reason lenders have become more cautious about let to buy in recent years: the rise of so-called “accidental landlords” raises concerns that some people are becoming landlords for the first time in an unplanned or ill-considered way.
So mortgage options can be more restricted than for experienced landlords, and most lenders will want to see evidence of the onward purchase to reassure themselves that this is not an attempt to get around normal affordability checks.
That said, most well-established buy-to-let lenders will have something to offer, and major names like BM Solutions (part of Lloyds group) and The Mortgage Works (a subsidiary of Nationwide) have lots of useful information for prospective landlords.
All the standard rules apply here: do some research into the local market, and be realistic about likely rent (a good estate & letting agent can be a great help here); think about whether you want to manage it yourself or have an agent do it on your behalf – generally easier, but at a price; don’t overlook other associated costs such as dedicated landlords insurance and potential tax implications; and most importantly make sure you’d be able to cover rental voids or repairs, especially in the first year or so while the “rent pot” is building up.
Loans are generally available up to 75% of the property value so it’s really only an option for those with a good amount of equity, and you should expect both the let-to-buy and new residential lender to assess how affordable the overall proposition is.
But with the continuing lack of housing stock, tenant demand high and a mildly encouraging outlook for house prices, let to buy can present a great opportunity for the thoughtful homeowner-cum-investor.
Guild Mortgage Service, Provided by London & Country Mortgages
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