What Is Let To Buy?
Let-to-buy (as opposed to buy to let) is the procedure of renting out your current home and buying a new onep to live in.
There is a lot to think about when doing this as there are many potential complications, including the costs and responsibilities of becoming a landlord. It might also involve having two mortgages at the same time and you would have to convert your existing mortgage into a buy-to-let mortgage in order to let out your current home, then take out a standard residential mortgage for the home you plan on buying.
Is Let-To-Buy A Good Idea?
Let-to-buy could be preferable for some homeowners in the following situations:
- They want to use the equity built up in their home to move to a new one, while keeping the existing home as a long-term investment.
- Those in a hurry to move to a new home and can’t wait to sell their current property.
- Homeowners who are struggling to sell their property.
- People wanting to buy a property with a partner but to hang on to their current home.
- Those moving elsewhere short term but plan on moving back
Let To Buy And Mortgages
You cannot rent out your home and buy another one without switching your mortgage first. Owning a rental property with a residential mortgage is likely to breach the terms of your current home loan. You will need to convert your residential mortgage into a buy-to-let deal (or obtain consent to let from your current lender).
This isn’t always straightforward as buy-to-let mortgages are often interest-only and rates are usually higher than on residential loans.
If you wish to release equity from your current property to use as a deposit on your new one, this can add further complications: your existing lender may allow you to switch to a buy-to-let deal but this will rely on your finances being reassessed all over again, this time based on buy-to-let criteria.
If this is not possible with your current provider, you could try to remortgage with another lender. Look out for early repayment charges though.
Some lenders offer specialist let-to-buy mortgages, which take some of the complications away. The criteria for Let-to-buy mortgages will include how much rental income you can bring in from the property you’re letting out, rather than how much you earn.
Specialist let-to-buy mortgages are available from a few providers and these will have different requirements including:
- A borrowing limit of 75%-80% of the value of your current home – if you want to release equity when remortgaging you’ll need to factor this into your calculations.
- Proof that you’ll bring in higher rent than your mortgage repayments: lenders usually require rent to cover around 145% of monthly repayments.
- Proof that you’re buying a new home at the same time as switching your mortgage: such as a mortgage offer for your new home.
- That you use the same solicitor for both transactions: this isn’t always required but is by some lenders. Maximum age: 70 or 75, usually.
Let To Buy Advice
Let-to-buy has lots of variables and therefore, a lot can go wrong. It is highly recommended that you speak to one of our conveyancing experts to seek advice on your options from one of our conveyancing solicitors who are based in manchester. We will help you from start to finish, helping to ensure you can complete in a timely manner with all legal aspects of the transaction completely watertight. . Finally, many buy-to-let mortgages are only available through brokers rather than directly from lenders, so a broker may be able to access deals you won’t be able to get on the high street.
Conveyancing Expert are an experienced and professional Conveyancing Solicitors based in Manchester and can offer advice on let to buy transactions. Get in touch today to discuss our Quality conveyancing services and all aspects of your residential or commercial conveyancing needs.
Let To Buy And Stamp Duty
When buying your new property, you will have to pay a 3% buy-to-let stamp duty surcharge on top of normal rates, which can add thousands to the bill so it’s hugely important to budget for this. The surcharge is applied because you will be buying a second home (even though it’s one you’ll be living in yourself). If you sell your original property (the one you’re renting out) within three years, you can claim the difference between what you paid and the normal home mover rates back.
Use our Stamp duty rates calculator, with its additional dwelling supplement calculator, to work out what you will pay on your property.
Buy-to-let isn’t always as viable as it sounds, so it’s important to ensure letting to buy is a sensible and cost-effective decision. As well as bringing in more than enough rent to cover the mortgage payments, you’ll need to contend with the costs of managing the tenancy. This could include employing a letting agent if you don’t plan on taking on the responsibility yourself.
Finding tenants can be particularly costly for landlords, especially since the introduction of the tenant fees ban in June 2019. You’ll also have to file tax returns each year for your rental income through self-assessment. There are further considerations in this area for landlords, as the government is currently reducing how much mortgage interest can be claimed against your tax bill.
What Are The Downsides Of Let To Buy?
- You will be responsible for two mortgages and that can be worrying for some people.
- You’ll be hit by the stamp duty surcharge rates (3% on top of the Stamp Duty band) when you buy a second property, although if you sell your first home within 36 months of completing the purchase, HMRC will make a full refund. To calculate your stamp duty rates, use our free stamp duty rates calculator.
- Let to Buy mortgage interest rates are not as good as standard residential mortgages (because of the increased risk).
- If you own two properties and house prices fall, you’re hit twice as hard.
Are There Any Alternatives?
If you are struggling to sell your home but are not in a mad rush to do so, one option is to stay put for now and see what happens with the property market after Brexit.
With rates very low at the moment, it can be a financial benefit for homeowners to fund renovations or home improvements by remortgaging, rather than by taking out a personal loan. Not all improvements will succeed in adding value to your property, however, so it’s important to weigh up the pros and cons and develop an understanding of your local property market before spending extra money on your home.
Always Seek Legal Advices
We always recommend using a conveyancing expert to carry out the let to buy legal process on your behalf. Our quality conveyancing services will see you from start to finish: we deliver an excellent and efficient service to ensure your property transaction is completed with expert legal advice and service.
Use our Stamp duty rates calculator, which has an additional dwelling supplement calculator, to work out what you will pay on your property.