Can you arrange a let to buy mortgage?

Answered on 20 April 2016 by Nick Morrey

I have an existing mortgage with Nat West for £230,000.I have improved the property an awful lot by adding extra bedrooms and extending the kitchen, the value of the property is now approximately £ 550,000.Please would it be possible to arrange a let to buy mortgage so that I could use equity in my existing property to buy a buy to let?

What you are looking to do is called let to buy, whereby you typically release equity on your existing property upto an maximum 75% loan to value, which can then be used towards the purchase of your new home.

Plenty of lenders will look at this type of scenario, with the actual amount of the Let to Buy mortgage based mainly on the rental income your current home is likely to generate. As a guide lenders normally expect this to cover your monthly mortgage payments by at least 125%.  The new main residence is then based on the lenders affordability criteria. Please be mindful that lenders have a slightly different way of assessing the impact of a let to buy mortgage in the background when determining how much you can borrow. We don't have to go to one lender for both loans, so we are able to select the best buy-to-let, and the best residential deals for you based upon your personal financial situation.

An alternative solution would be to remortgage your existing property (subject to valuation) and raise funds to purchase a new buy-to-let property. You could then continue to reside in your current home.

However, it's important to remember that you would also need to factor in buying costs for buy-to-let properties such as solicitor’s fees and stamp duty, which at £270,000 purchase price would be £11,600. This means that you would only have a small deposit. From 6 April 2017 changes to tax relief given against finance costs for buy-to-lets will begin to decrease. You may be aware that from 2020 no mortgage costs can be deducted from property income, you should be mindful of this prior to entering the buy-to-let market.

Although not knowing your full financial position, it would appear, based on the information you have supplied that this something we can help you explore the options available to you. I suggest that the next step would be to discuss your enquiry in more detail by calling us on 0344 346 3672.

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.


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