What is a Let to Buy Mortgage?

Published / Last Updated on 13/06/2024

The clue is in the title for a let to buy mortgage.  You let your existing property with a mortgage on it and use the mortgage to release capital to buy another main residence.

Many people are lucky enough to get on the property ladder and buy their own home. 

Career wise, many people then move on to new employment or up the career ladder but need to move town, city or even overseas.

Many would like to keep their original home and rent it out to then buy another property to live in at their new base having perhaps rented in the new location for a period.

Initially, when you move out of your original property you can arrange a ‘consent to let’ from your existing residential mortgage lender.  Consent to let usually only lasts for a year to two and then your residential mortgage lender will expect you to move to a ‘buy to let’ or ‘let to buy’ mortgage.  This gives mortgage lenders greater rights and protection as well as your tenants.

Let to Buy Mortgages

  • Operate in the same way as buy to let mortgages.
  • 25% deposit or equity required.
  • You can borrow up to 75% of the value of the property.
  • Any capital raised can be used for a new deposit on your new home whilst keeping the first property.
  • Some lenders will test affordability based upon your available income.
  • Most lenders will lend based upon the rental income of the property covering the mortgage payments.

Tax issues to be aware of when buying a second home:

  • Stamp Duty Land Tax on 2nd homes is 3% higher than normal stamp duty rates for your 2nd property.
    • If you sell your original property within 3 years of buying the 2nd property you can reclaim the additional stamp duty paid.  You must make the reclaim to HMRC within 12 months of the sale of the original property.
  • Capital gains tax may be payable on the original property is you keep it for a period (as a rented property), it goes up in value and then you sell it.  You have 60 days to pay any capital gains tax due.

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