You have probably heard of Buy-to-Let, but how much do you know about Let-to-Buy?
Let-to-Buy is when you rent out your own existing home in order to buy another one to live in. It effectively means you have two mortgages at the same time. Anyone wishing to take advantage of the scheme has to convert their existing mortgage into a specialised Let-To-Buy mortgage and then take out a standard residential mortgage on the home they are buying.
Why do people use Let-to-Buy?
There are many situations in which a Let-to-Buy may be beneficial for you. The most common one is that people have equity built up in their home and want to use it to move to a new home while keeping their current home as a long-term investment. Other times when Let-to-Buy may be a good option include when market conditions are making selling your home difficult, you want to buy a property with a partner but want to keep your existing home, you need to move to a new home quickly or want to make a short-term move to a new area but plan to return at a future date.
Is it easy to convert to a Let-to-Buy mortgage?
To take part in Let-to-Buy, you first need to convert your current mortgage to a Let-to-Buy one. Failure to do so could result in your breaching the terms of your current mortgage.
However, Let-to-Buy mortgages often have higher rates and are most often interest-only, so the process of switching is not always simple. There can be further difficulties involved when it comes to releasing equity from your home to use as a deposit for a new place. Some lenders do offer a specialist Let-to-Buy mortgage.
However, this differs from a normal mortgage, as it is not based on what you earn but on how much rental income you can generate from your existing property. Let-to-Buy mortgages usually require proof that you can generate more rent than your mortgage repayments, proof that you are buying a new home and a borrowing limit of up to 80% the value of your current property.
Let-to-Buy is based on a lot of variables. You will need to search for the best conveyancing solicitors in Maidstone, London, Liverpool or wherever it is that you are searching for support and advice. Many mortgage lenders will require you to use the same solicitor for both the sale and purchase transactions, so you will need to choose a qualified conveyancer with good knowledge of Let-to-Buy, such as those at Sam Conveyancing.
What are the disadvantages of Let-to-Buy?
When buying a new property under Let-to-Buy, a 3% stamp duty charge is incurred on top of the normal rates. This charge can run into thousands of pounds and make a big budgetary impact. If you sell the original property within three years, you can claim the difference back.
Interest rates are usually high for Let-to-Buy mortgages, while anyone with one will take on a lot of liability as the holder of two mortgages simultaneously.
Let-to-Buy also opens you up to some of the problems associated with being a landlord, including finding good tenants, maintaining a property and filing tax returns. According to Property Wire being a landlord is increasingly stressful, with many using up to 20% of their annual leave to sort out issues with their properties.
Let-to-Buy is based on a lot of variables and, as such, does involve a greater degree of risk. Anyone considering it needs to weigh up the pros and cons thoroughly before making the move.