A guide on let-to-buy

Most people are aware of the principle of buy-to-let properties but far fewer are away of let-to-buys. So what exactly are they? And what are their pros and cons?

What is Let-to-Buy?

Let-to-buy refers to the situation where a person lets out their original property so that they can buy a new residential property.

There are many reasons why people choose to go down the let-to-buy path. For example, if…

You have found your dream home but you’re struggling to sell your current property
You are working away for a few years but intend to move back eventually
You don’t want to sell your property at its current market value
You and your partner currently have separate homes but want to move into one property together

What is a Let-to-Buy mortgage?

When it comes to let-to-buy there are actually two mortgages involved: a let-to-buy mortgage on your original property and a typical residential mortgage on your new property. Hence the name – you LET out your previous home in order to BUY your new one.

If you have enough equity in your current home, you can remortgage it with a buy-to-let mortgage to release cash for a deposit on a new home. Ideally, the rental income from your original property will then cover the mortgage costs of your new property.

A crucial consideration is calculating whether your projected rental income will cover repayments once your original home is remortgaged as a let-to-buy property. You’ll also need to ensure you have enough equity left in your property to meet your mortgage lender’s minimum let-to-buy loan to value (LTV) ratio.

Let-to-Buy and Stamp Duty

On the 1st of April 2016, the government introduced an additional 3% stamp duty tax on top of normal stamp duty rates for any additional properties you buy. However, the extra 3% will be refunded if you sell the property within three years. While this may benefit some let-to-buy home movers, it is of little comfort to many people in this situation who consider letting their property as a long-term investment.

If you’re looking to invest in another property, use our stamp duty calculator to see how much you’ll need to pay.

Pros and Cons

Pros

Reduces pressure of selling a property quickly at a lower price
Helps you move into a new home while also transitioning into rental property investment
You’ll own two properties, which are high value, reliable assets

Cons

You’ll own two properties, which are susceptible to market changes – a fall in property value could hit you twice as hard
Pressures of being responsible for two mortgages
Let-to-buy rates are not as good as residential mortgage rates
Let-to-buy deals are harder to find than buy-to-let deals

Buy-to-Let VS Let-to-Buy

As the names suggest, a buy-to-let property is one that you purchase for the purposes of renting it out to tenants, while let-to-buy refers to letting out your original property in order to buy your new home.

Let-to-buy owners may choose to sell their rental property after a certain time or continue to rent it out indefinitely.

Important Note

All information contained in this website is provided as a guideline only, is based on estimates and assumptions, may not be accurate or complete, and is subject to change. We make no representations or warranties with regards to this information, expressed or otherwise. A buyer who relies on such information does so at their own risk. Buyers are advised to seek independent financial advice and should undertake their own due diligence.

Your capital is at risk. Property values may decline and the property might not be able to be rented at amounts sufficient to cover debt interest costs, operating expenses and liabilities, and might not result in a positive cash flow. Property is an illiquid asset and should not be viewed as a short-term investment.

In no event will we be liable for any loss or damage, including without limitation any loss or damage arising directly or indirectly out of or in connection with the use of this website and the information contained therein.

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