An insight into Let to Buy Mortgages

Limetree Financial Services Limited

An insight into Let to Buy Mortgages

What Is A Let To Buy Mortgage

We often get calls from clients saying they want to do a buy-to-let on their main house. The term is let-to-buy. Quite simply, all that means is you’re letting your house out to buy a new one.

It’s a small difference, but it is quite a key difference in terms of your options. Lenders are quite keen on this type of business. There’s a lot of lenders that don’t want to do it, but a lot of lenders that do and they’ve got a variety of different criteria.

In essence, what you’re doing is you want to buy a house. You want to get some of the deposit or some of the equity out of your house. Not always, but nine times out of 10, get the deposit out of the house to enable you to move to a different location.

You may be struggling to sell your house. You may not want to sell it, because it’s a good investment and you’re quite happy with it.

A let-to-buy mortgage enables you to extract funds, then rent your house out so that it’s self financing, looking after itself, and you can concentrate on just paying your mortgage wherever you move to.

What Are The Lenders Looking For With A Let To Buy?

If the let-to-buy is washing its own face, most lenders are happy to ignore it.

What you do need to spend more time on when you’re looking at a let-to-buy is the criteria for that particular lender.

For example, some lenders won’t do a let-to-buy until you’ve got an onward address.

Now, there’s always a worry in that you think your house is worth X amount of money and you think you’re going to get X amount of rent in, but until you’ve had it surveyed, you never actually know that.

It’s good, if possible, to find a lender that’s happy for you to refinance it, not draw the money down, but just to have a mortgage offer there so that as and when you do find that dream home, you’re in a position that you can jump on it straight away and make sure there’s going to be no hiccups.

Life is all about trying to iron out those problems and that’s one good way of doing it.

How Early Should Someone Start Planning A Let To Buy?

We spend a lot of time at Limetree planning people’s next mortgage 12, 18, 24 months in advance.

Very few people sporadically decide, this is what we want to do. It very often coincides with perhaps kids needing to get into a particular postcode for schools, things of that nature, job relocations, but normally you’ve got a bit of a lean to time on it.

The more time we can get the better.

Mortgage offers are valid normally for three months with the option to reextend for three months quite easily. Once we have put you in that position and the clock’s ticking for you to find the house, normally people are quite responsive to that.

What Happens If You Go Direct To Your Bank For A Let To Buy?

NatWest, as an example, would restrict the amount they would lend on income multiples.

Most let-to-buy transactions, it’s all about the rent that’s achieved. As long as you hit the rental calculation, they’ll ignore it.

NatWest could be a really bad lender to look at using for a let-to-buy transaction if your income was six figures and you’re looking to buy a £500,000 house. Each lender’s got their own little areas of the market.

CambridgeBuilding Society will allow your income to top up any shortage that you are on the expected rental income that’s going to come in. That’s really good to know that you can get a 75% loan to value deal.

Somebody like The Mortgage Works have quite a strict calculation. If you’re £5 under that calculation, then they won’t lend you the full 75%, which then in turn may have an impact on the house you’re looking to move forward on.

Each client is different. The reason there’s so many lenders that deal in these markets is because each lender has got a slightly different way of looking at it.

A Let To Buy Calculator Online Won’t Tell You Criteria

The rate is always a starting point. We would always start at the top of the tree and work our way downwards.

Criteria very often dictates… A really good example is if you wanted to buy a property without an onward address, certain lenders are not happy with that. Certain lenders are.

It’s quite a technical mortgage, in that it’s something we do really enjoy because you’ve really got to get stuck into it and take a fair bit of involvement in the case.

It’s not everyone’s cup of tea, but it’s cases like this that do make the job enjoyable.

Both Mortgages With The Same Lender?

What’s quite interesting, it’s very seldom you do both mortgages for the same company. Before I would’ve thought that if you’ve done one let-to-buy with one lender, it would make sense to do the onward purchase with the same lender.

Very often, that’s not the case. You tend to find that because it’s a bit more of a quirky deal, it’s not necessarily, as you mentioned earlier, rate driven. It’s criteria driven. Yeah, it just keeps us on our toes and that’s what we need.

Where can people get stuck, if they’re trying to do it on their own?

It can be as simple as, as we’ve alluded to earlier, not having an onward purchase can be an instant decline with some lenders. Therefore, you may think that you can’t do it in advance when you actually can.

A lot of lenders won’t take the rental income into account until it’s provided on an SA302 or tax computation. There are quite a few variables with it.

What Do I Need To Know Now?

The first thing we would make you aware of is stamp duty, that’s important that you understand that, so that’s the first goal to cover off.

Secondly, it’s ensuring you’ve got enough equity in your property so it’s important that you do take advice sooner rather than later just to make sure that’s a route that you can go down.

It’s important that you speak to a broker that’s got access to all the market. Let-to-buy transactions are not totally uncommon, but they’re not the run of the mill sort of cases that lenders tend to go for.

You do tend to find there’s some sort of quirky lenders that seem to pop up, you may not find them walking down the high street. It’s important that the broker has access to those deals.

We think it’s important you go with somebody that does have the experience to be able to deal with these types of transactions.

What Could I Find Out From An Initial Chat With a A Broker?

There’s a few basic calculations we need to do. We just need to work backwards, do the maths to make sure there’s going to be sufficient deposit to take us forward and enable you to be able to buy that house you want to be looking at.

The sooner we can meet up, the sooner we can identify what house, what deposit you could extract so, therefore, what size mortgage you’d get and the onward purchase.

People never really know what rental income their property would achieve. They’re always pleasantly surprised by that. You often look in the paper to see what your house is worth, but you seldom look to see what you’d get in rent for it.

Having a good knowledge of what the property would rent for makes it an easier job for us and, yeah, just enjoy our cup of coffee.

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