Let to Buy

Posted on 31 October 2011 by Pam


I have a property worth approx £275,000, on which I have a mortgage of £143000. I would like to rent out this property for approx £1100pm and buy a new property for approx £350,000. My annual income is £48000. Would I qualify for a let to buy mortgage and how will this be calculated?

Pam

Let to Buy is a confusing term as it describes the transaction rather than the mortgage choices.  You will end up with a Buy to Let mortgage on your existing property and a residential mortgage on the new property.

The anticipated monthly rental you quote would certainly allow you to transfer the mortgage your existing property to a Buy to Let and you can do this in one of two ways.  Either you approach your existing Lender and ask them for permission to let or you remortgage to a new Lender and take a BTL mortgage.

Your existing lender may only allow you to let the property for a short while, for instance if you were working abroad for a couple of years with the intention of coming back and living in the house.  This would usually be done by charging you a small administration fee and giving you a letter of consent, though some Lenders do also want to increase the interest rate you are paying to reflect the increased risk to their security.  Alternatively, they may be willing to let you rent out the property indefinitely and in this case they would normally transfer you onto one of their Buy to Let mortgage products.

If you are looking to remortgage then the amount you can borrow is going to determined by the anticipated monthly rental, the loan to value (LTV) and the interest rate of the new mortgage.  Most Lenders will want the monthly rent to exceed the mortgage payment by at least 125%, this allows you to build up a reserve fund after meeting the mortgage payments to cover repairs, maintenance and any rental voids.  I would expect you to be able to borrow around £175,000 which would give you enough to redeem your existing mortgage and give you money towards the deposit on the new property.

The new residential mortgage will be calculated using your earned income and as long as the rent meets the criteria above, the Lender should ignore the Buy to Let mortgage in the background.

I believe we can help you and that you would benefit from speaking to one of our independent mortgage advisers.  Please call 0344 346 3672 and tell the consultant the date and title of your question, they will then be able to advise you on your situation.

Peter

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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