This is when you rent out your existing home and buy a new one to live in. It involves having two mortgages at the same time.
Understanding Let to Buy
Have you ever considered renting out your current home while buying a new one? We’ll cover everything you need to know about Let to Buy:
- Advantages and disadvantages.
- How it’s different from a buy to let mortgage.
- Stamp duty.
- How to secure a let to buy.
What is a let to buy?
Let to Buy is a way for you to rent out your current house. You use the money you make from renting it out to help you get a loan for a new house. This method is great for people who want to move to a new house but can’t sell their current one right away or prefer not to sell it. For example, if you’ve found the perfect new home but can’t sell your old one fast enough, Let to Buy can help you move without having to give up on your plans.
Let to Buy vs Buy to Let Mortgage: Spotting the Differences
It’s important to understand the differences between Let to Buy and Buy to Let mortgages. They both involve renting out properties but for different reasons. Both options have different benefits.
Let to Buy means the house you currently live in turns into a rental property because you’re buying a new house to live in. A Buy to Let mortgage is when you buy a house to rent it out to others. The main difference is what each option is aiming to do.
Let to Buy is great because it lets you move without selling your old house. You might make money off it as its value goes up over time. With a Buy to Let mortgage, you get to make money from rent right away and your property might get more valuable, helping you build wealth.
Buy to Let, is a good choice for those looking to make money by renting out a property. Let to Buy is best for people who want to move to a new house but also keep their old home and rent it out.
Securing a Let to Buy Mortgage: The How-To
Understanding how to qualify for a Let to Buy mortgage can help you get approved. Lenders want homeowners who plan to rent out their current home, which should already have a mortgage. They will look at how much money you make, what you spend, and your other money responsibilities.
It’s important to have a good credit history. Lenders will check your credit to see if you’re good with money. If you’ve missed payments or have defaults, it might make it harder for you to get approved. It’s a good idea to look at your credit report first and fix any problems.
Once you qualify, you’ll have to give some documents:
- Proof of how much you earn.
- Bank statements.
- Information about the property you want to rent out.
How much you can borrow may depend a lot on how much rent you expect to get from the property.
Each lender has their own rules and needs. Getting advice from a mortgage broker who knows a lot about Let to Buy mortgages can be helpful. They can walk you through everything, help you find the best deals, and improve your chances of getting a good Let to Buy mortgage.
Let to Buy: The Pros and Cons
Let to Buy can be a good choice if you’re thinking about investing in property. It comes with benefits like:
- Being able to change plans easily.
- Getting a steady income from the renters.
- Possibly seeing the property’s value go up.
However, there are risks too:
- You might not always have tenants.
- You’ll have to pay for repairs.
- There’s a chance tenants might damage the property, and looking after the property takes time and effort.
- If you rent out your property, it might make it harder for you to get another mortgage because lenders will look at the mortgage you already have to see if you can afford another one.
To lower the risks, it’s important to get advice from experts. Make sure to carefully check who you’re renting to and get insurance for landlords to keep your investment safe.
Stamp Duty and Let to Buy
Stamp Duty is a tax you have to pay when you buy a property in the UK. If you’re buying a new home but already own one, like when you’re doing a let to buy, you’ll have to pay more Stamp Duty because it counts as a second home.
To save on Stamp Duty, you can:
- Buy a house that costs less than the amount where Stamp Duty starts.
- Transfer ownership of your current house to a spouse or civil partner.
- Look into any special discounts or rules that might apply to your situation, to see if you can pay less.