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?
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…
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.
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.
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.
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