Let to Buy Mortgage Advice: Move Home Without Selling Your Property
What Is a Let to Buy Mortgage?
A let to buy mortgage is a solution that allows you to move to a new home without selling your existing one. Instead of selling, you convert your current residential mortgage to a buy-to-let mortgage, rent your property out to tenants, and then take out a new residential mortgage on the home you want to live in.
The result is that you own two properties simultaneously: one you live in and one you let out. The rental income from the first property helps to cover its mortgage payments, and any equity you have built up in it can often be released to contribute towards the deposit on your new home.
At J Finance, we advise on both the let to buy mortgage on your existing property and the new residential mortgage on your next home, coordinating both applications to ensure the timing works smoothly.
Let to Buy vs Buy to Let: What Is the Difference?
These two terms are often confused but they describe quite different situations.
Buy to let refers to purchasing a property specifically as an investment to rent out. You do not live in the property and it is not your main residence.
Let to buy refers to a homeowner who already owns and lives in a property deciding to rent it out while moving to a new home to live in. It combines moving home with becoming a landlord at the same time, using the existing property as a rental rather than selling it.
The mortgage products used in each scenario are different, and the lender assessment process reflects this. Let to buy applications involve two simultaneous mortgages being arranged in coordination, which makes working with an experienced adviser particularly important.
Why Do People Choose Let to Buy?
There are several common reasons homeowners choose a let to buy arrangement rather than simply selling their existing property:
Retaining a property they believe will grow in value
Some homeowners are reluctant to sell a property they believe will continue to increase in value. Let to buy allows them to hold onto it as a long-term investment while still moving to a new home.
Avoiding selling in a slow or uncertain market
If the property market is slow and achieving a good sale price is difficult, let to buy allows you to move to a new home without being forced to accept a lower offer than you would like. You can rent the property out and revisit the sale when market conditions improve.
Generating rental income
The rental income from the let property can help cover its mortgage payments and, where the rental yield is strong enough, may also generate a surplus. This can be a useful additional income stream, though it should be noted that rental income is taxable and there are ongoing costs to account for.
Moving for work or lifestyle reasons without a permanent commitment to sell
For those relocating temporarily for work, or who are uncertain about their long-term plans, let to buy provides flexibility. It allows you to move and settle into a new area while keeping your options open regarding the original property.
How Does Let to Buy Work?
The let to buy process involves two mortgage applications running in parallel:
Step 1: Converting your existing mortgage
Your current residential mortgage must be converted to a buy-to-let mortgage with your existing lender, or refinanced onto a buy-to-let product with a new lender. This is required because standard residential mortgages do not permit you to rent the property out to tenants. The lender will assess the rental income the property can achieve and your overall affordability.
Step 2: Releasing equity for your new deposit
If you have built up equity in your current property, you may be able to release some of it at the point of switching to a buy-to-let mortgage. This released equity can then be used as part or all of the deposit for your new residential purchase. The amount available will depend on the value of the property, the outstanding mortgage balance, and the lender's maximum loan-to-value on the buy-to-let product.
Step 3: Applying for a new residential mortgage
Simultaneously, you apply for a new residential mortgage on the property you intend to move into. The lender will assess your income, outgoings, credit profile, and the affordability of both mortgages together. Some lenders factor the expected rental income from the let property into their affordability calculation, which can help. Others will assess both mortgages purely on your personal income.
Step 4: Completion
Both mortgages complete, your existing property is let to tenants, and you move into your new home. From this point you have the responsibilities of both a homeowner and a landlord.
Key Considerations Before Choosing Let to Buy
Affordability of two mortgages
Lenders will assess whether you can afford both mortgages, even accounting for rental income. You need to be confident that you can cover both sets of payments if the let property is vacant for a period, if a repair bill arises, or if your income changes. Stress-testing your finances against these scenarios before committing is important.
Equity requirements
Most buy-to-let lenders require a minimum of 25% equity in the let property. This means your outstanding mortgage balance must be no more than 75% of the property's current value. If your equity is below this level, switching to a buy-to-let mortgage may not be possible without making a capital repayment to bring the balance down.
Rental income assessment
The buy-to-let mortgage on your existing property will be assessed against the expected rental income. Lenders typically require that the projected monthly rent covers between 125% and 145% of the monthly interest payment on the buy-to-let mortgage. If the local rental market does not support rents at this level relative to the loan size, the application may not be viable.
Stamp duty
Because you will own two properties simultaneously at the point of purchasing your new home, you will be subject to the additional Stamp Duty Land Tax surcharge that applies to second properties. This is a significant cost that should be factored into your financial planning from the outset. We recommend speaking with your solicitor about the exact amount payable on your purchase.
Tax on rental income
Rental income from your let property is subject to income tax. The amount of tax you pay depends on your total income and tax band. Since changes to mortgage interest tax relief were phased in between 2017 and 2020, individual landlords can no longer deduct mortgage interest directly from rental income. Instead, a basic rate tax credit applies, which can significantly affect the net return for higher and additional rate taxpayers. We strongly recommend taking accountancy advice alongside your mortgage advice to fully understand the tax implications.
Landlord responsibilities
Once your property is rented out, you take on the legal responsibilities of a landlord. These include ensuring the property meets safety regulations, managing or instructing a letting agent to manage tenants, maintaining the property, handling disputes, and complying with tenancy legislation. These responsibilities carry ongoing time and financial commitments that should not be underestimated.
Tips Before Proceeding with Let to Buy
• Check your existing mortgage terms carefully. If you are mid-way through a fixed-rate deal, switching to a buy-to-let product may trigger early repayment charges. Calculate whether these costs are justified by the benefits of the arrangement.
• Research local rental values before committing. Speak with local letting agents to get a realistic picture of achievable rents. The rental income needs to meet the lender's stress test, so understanding this early is essential.
• Calculate your equity position. Work out the current value of your property and subtract the outstanding mortgage to establish how much equity is available, both for the buy-to-let deposit requirement and potentially for your new home deposit.
• Factor in all the costs. Include the additional Stamp Duty surcharge, letting agent fees if you use one, landlord insurance, maintenance costs, and void periods in your financial planning.
• Take tax advice before proceeding. The tax implications of becoming a landlord are significant and depend on your personal income and tax position. An accountant can help you understand the net return after tax and whether a personal or limited company structure might be more appropriate.
• Plan for void periods. Do not assume your property will always be tenanted. Budget for periods where there is no rental income and ensure your finances can sustain both mortgage payments in the interim.
Get Started with J Finance
Let to buy is a specialist area that requires careful coordination of two mortgage applications and a thorough understanding of the affordability, tax, and legal landscape. At J Finance, our advisers manage both sides of the arrangement, ensuring the applications are structured correctly and submitted in the right sequence to avoid delays or complications.
We work with clients across the UK, with advisers based in Berkshire, Oxfordshire, Hertfordshire, Bedfordshire, Derbyshire, and London, as well as serving clients remotely nationwide. Appointments are available by phone, video, or face-to-face at our Newbury office, with out-of-hours slots available on request.
To arrange a no-obligation conversation, call us on 01635 521300 or email contact@jfinance.co.uk.