Let-To-Buy is the process of letting out your existing home (rather than selling it) and buying a new one to live in.
Clearly, we’re generally more used to selling one home to buy another in the UK. But given all that’s happened in the housing market over the past couple of years, it’s a good idea to consider all the options when it comes to moving up that property ladder.
So, why consider Let-to-Buy?
- You need to move quickly and don’t want to jeopardise your new purchase by being dependent on selling your existing home.
- Your property has been on the market for a while but isn’t selling.
- You have equity in your existing property and are interested in dipping a toe in the water of being a landlord by managing a known property.
- You want to buy with a new partner but also to keep a property interest of your own.
- You’re looking for a way to supplement your pension or retirement plan.
How does it work
The first thing to consider is that you will generally need to have a good amount of equity in your existing property to make a Let-To-Buy work. Equity is the difference between the market value of the property and any outstanding debt you have secured against it.
You will still need to find a deposit for your new purchase. So, unless you have a handy lump sum hanging around, you will probably need to remortgage your existing property on to a buy-to-let mortgage deal.
These are assessed in a different way to traditional residential mortgages and how much you can borrow will be based around potential rental income, rather than your own income.
Then you can take the extra money that you’ve released and use that as the deposit for your new purchase.
So, let’s assume your property is worth £300,000. You have an outstanding mortgage of £150,000 and need an extra £75, 000 for a deposit towards a new purchase. You would take out a mortgage of £225,000 which would give you the required £75,000 deposit.
Ask the experts
Exploring the Let-To-Buy option is a little out of the ordinary but for some people it’s an ideal solution to a property woe or just a sensible financial move. Which is why it’s often a good idea to run your property plans past a professional mortgage adviser. They have all the up-to-date market information and will be able to talk through the options that best suits your particular financial circumstances.
Jo Jingree from Mortgage Confidence says: “There are a lot of moving parts with a let-to-buy situation, but for some it can be an ideal solution.
“A recent client had a flat above a commercial enterprise. It was really well located, with good transport links but just wasn’t shifting on the property market. Which was a problem as he desperately needed to move his family to a bigger home.
“The flat worked well as a rental property, and the client’s circumstances were such that we were able to do a let-to-buy. All of which meant that he was able to move much more quickly than if he’d had to wait to sell. And he’s now happily settled in a lovely family home. While the flat is rented out to a young professional delighted with its convenient location!”
If you would like to find out more about Let-To-Buy, then why not get in touch with Jo? She has many years’ experience and has now been listed in The Times Guide to the top-rated Financial Advisers for four consecutive years.