How much can we borrow on a Let To Buy?

Posted on 25 February 2013 by Matt


Hi, I own a two bedroom flat worth £330k with a mortgage of £100k. We would like to rent this property out and buy a house. Our combined income is £100k a year. Could you let me know how much we would be able to borrow? We have no other savings for deposit etc. Thank you, Matt

Matt,

What you are looking to do is known as a 'Let To Buy' and would entail you capital rasing on your existing property to provide the depsit for the new house you want to buy. You would also need to deduct the various expenses associated with moving home, such as legal fees, stamp duty, removal costs, surveys, etc..

Most lenders for Let To Buy / Buy To Let purposes cap the maximum loan at 75% Loan to Value, though there are a few who will go slightly higher, but if you want the widest choice, then 75% is the norm. Subject to the rental income that your flat will generate meeting the lenders rental calculation (typically 125% of the pay rate or notional rate) then you could raise a new mortgage of around £247,500 which after paying off your existing loan would leave you £147,500 to play with.

With reagrd to the new purchase, the majority of lenders tend to use affordability calaculators rather than the old style salary multipliers, so without knowing your exact financial situation I cant really say how much you could borrow on the new purchase, however a general rule of thumb would be around 4.75 x salary, though this will vary a lot from lender to lender. Another variable is how a lender will treat your existing property. As it has yet to be let out, some will treat it as a comittment, rather than self financing.

This is one of the reasons people find it easier to deal with an independent broker who has access to the whole of the market, and who knows the criteria, rather than yourself having to approach each individual lender direct.

If you'd like to get a better idea of exactly what you can do, then please let me know and I'll arrange a convenient time for you to speak to one of our consultants.

Regards,

Simon

simon.collins@johncharcol.co.uk

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