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Let to buy, what you need to know!

Let to buy, what you need to know!

Let to buy, what you need to know!

Plenty of opportunities exist for UK homebuyers today but there are also many challenges too. Perhaps top among these is financing. Shifts in house prices, problems getting the right mortgage or dealing with the logistics of making the right payments at the right time can frustrate even the best efforts to get your foot onto the next rung of the property ladder. Let to Buy is an option that has the potential to change that - it's a simple way to release funds to buy a new home without having to sell an existing property first and to generate rental income from the initial investment.

How does Let to Buy work?

Let to Buy is a mortgage - two mortgages really. You will effectively be applying for one mortgage for the property you already own and a second for the one that you want to buy, both with the same lender. The mortgage for the property you already own will be a Buy-to-Let mortgage that you should aim to cover with the rental income from the property. The second mortgage will be a straightforward residential mortgage - if you have equity in the property you already own this can be put towards a deposit for this second loan.

Why might you want to use Let to Buy?

There could be any number of reasons that Let to Buy appeals. For example, you might be keen to move back into the property at some point in the future. Or you might be sitting on a property that just isn't generating much interest from buyers in the market and letting it for now could be more profitable. It may be that you see the existing property as an investment that you're not keen to let go of and you want to be able to buy a new home while retaining it to generate income. Let to Buy is also popular where there has been a fall in property values since the initial home was purchased.

What are the eligibility criteria and how much can you borrow?

Most mortgage lenders will consider the following:

  • The Buy-to-Let loan for the existing property: 75% Loan To Value, which means you'll need at least a 25% deposit. Most lenders will also require rental income that equates to 125% of monthly mortgage payments.
  • The residential mortgage for the new property: this will require at least a 10% deposit. The higher the deposit the better the deal and the more chance that you will get the mortgage.

Eligibility criteria for Let-to-Buy will vary by lender but you should be prepared with a good credit score and evidence that you can meet the deposit and rental requirements set out above. It will also be necessary to ensure you meet the affordability criteria for the new property.

Let-to-Buy has a lot of benefits for those who are looking to move on to a new property and generate rental income from one that is already owned. It allows existing property owners to leverage assets to create new opportunities for the future.

03 July 2020Written by Andrew Blythe

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