How Let-to-Buy Works
Let-to-buy involves two separate mortgage transactions. First, you convert your existing residential mortgage to a buy-to-let or obtain consent to let. Second, you take out a new residential mortgage on the property you want to move into.
The process requires careful coordination, as both mortgages need to be in place before you complete on the new purchase. Most lenders assess the two applications together, considering the rental income from your existing property alongside your personal income for the new residential mortgage.
Mortgage Options for Your Existing Home
You have several options for your current property. The simplest is obtaining consent to let from your existing lender, which allows you to keep your current mortgage while renting the property out. This works well as a short-term solution but may come with rate increases or restrictions.
For a permanent arrangement, remortgaging onto a proper buy-to-let product gives you access to BTL rates and terms. Some lenders offer specific let-to-buy products that combine both transactions into a streamlined process. A broker experienced in let-to-buy can identify the most efficient route for your situation.
Affordability Considerations
Lenders must be satisfied that you can afford both mortgages. Your existing property's rental income will be factored into the affordability assessment for the new residential mortgage, but lenders typically only count 75% to 80% of the rent to account for voids and expenses.
You will also need a deposit for the new property. This can come from savings, or if you have significant equity in your current home, you might remortgage to release cash. Be aware that the BTL mortgage stress test must be passed on the rental property, and the new residential mortgage must pass standard residential affordability checks based on your income.
Tax and Stamp Duty Implications
Buying a new home while keeping your existing property means you will own two residential properties. This triggers the 3% stamp duty surcharge on the new purchase, which adds significantly to your costs. However, if you sell your original home within three years, you can reclaim the surcharge — though this only applies if the new property becomes your main residence.
As a landlord, you will need to declare rental income to HMRC and pay tax on your profits. Allowable deductions include mortgage interest (subject to Section 24 restrictions for individual landlords), letting agent fees, maintenance costs, and insurance premiums. Keep detailed records from the start to make tax returns straightforward.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.