Can you rent your home to buy and get a mortgage on a second property?

Posted on 26 February 2018 by Matt


Q. Can I rent out my current home, so I can afford to buy another property to live in? I would need two mortgages to do this – is that possible?

A. Many customers who ask about letting their existing home wish to release the equity so they can afford to purchase of a more expensive property and use the rental income to pay the mortgage on the second property.

Other times, they are struggling to sell their property and wish to rent, so they can move into a new property more quickly.

In both cases, the home owner could benefit from what is known as a let to buy mortgage. Although this name is a little deceiving as it actually refers to having two mortgages at the same time: a buy to let mortgage that allows you rent out your old home and a second mortgage to fund the purchase of your new home.

Usually, when you sell your home to fund the purchase of another property, you put the equity from the sale of your property down as a deposit on the new one.

Where you want to let your home rather than sell it, you would need to release some of your equity by borrowing more against your current home. You can then use the funds raised to put down a deposit on your new home and take out a new residential mortgage for the balance. The amount of equity that you can release will depend on the anticipated rental income, the size of your current mortgage and its value.

Most buy to let lenders will allow you to borrow up to 75% of the value of your current home. When you put down at least 25% of your money, will also to get the benefit of more competitive buy to let mortgage rates.

Based on a value of £200,000, the maximum amount you can borrow would be in the region of £170,000. Out of this you will also need to repay you existing mortgage and cover the costs of moving.

Unlike a standard residential mortgage, a buy to let lender will calculate the exact amount you can borrow based on the rental income you are likely to generate, rather than your income. However, the lender will still want to check your incomes to make sure that you can afford to cover any periods when there is no rental income and any maintenance or repairs the property may need in the future. The residential lenders for your new home will also want to know how much you are borrowing on the buy to let mortgage and what your rental income is so that they can also be happy that you can afford both mortgages.

If you are interested in let to buy, we recommend speaking to two or three local estate agents that are registered with the Association of Letting Agents (ARLA) to estimate your rental income.

You can then consult an independent mortgage adviser about your plans and the mortgage options available to you. It may be that you end up with two different lenders where you can’t find one lender to satisfy both mortgages.

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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