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What exactly is let to buy?

Most of us know what the term ‘accidental landlord’ means, and more than a handful of us probably are – or were – accidental landlords ourselves.

For those who need clueing in, an accidental landlord is someone who doesn’t intend to get into property investment, but by circumstance are forced to. In many cases these are people who had to relocate for a job but who couldn’t afford to sell their original home.

For these people, financing a new home purchase by letting out their old home is the answer, and the name given to this little switcheroo is called ‘let to buy’.

But what, exactly, is let to buy?

There’s some unsurprising confusion surrounding this term. In all but a few cases, ‘let to buy’ doesn’t refer to an actual product – let to buy ‘mortgages’ are, with the majority of lenders, the same products as their buy to let mortgages.

The term exists because of how tight mortgage regulations have become since the financial collapse of yester-decade. Specifically, you can’t let out a property with a residential mortgage, and you can’t live in a property with a  buy to let mortgage. This is categorical – because residential mortgages are regulated and, in most cases, buy to let mortgages aren’t – occupying your own rental property for even one day opens up a whole bumper-sized can of legal worms.

The process, put (very) simply, for letting to buy is:

  1. Get either ‘consent to let’ from your lender, or a buy to let remortgage.
  2. Get a mortgage for a new property.

‘Consent to let’ has a raft of downsides, among which are:

  • It often comes with a limited time-frame and bumped-up interest rate
  • It can’t be used to get money for a new deposit
  • Many lenders will outright refuse

Additionally, the first mortgage is still technically a residential mortgage, which means that lenders will consider you ‘encumbered’. The fact that you already have a mortgage in place will make a lender think of you as higher risk, and they might charge you higher interest rates for your new mortgage. Most lenders will ignore the old mortgage provided the rent your old property makes pays for it, but others won’t.

A ‘let to buy’ arrangement, however, entails paying off your old residential mortgage with a new buy to let mortgage. If the rental income and LTV will permit it, you can also borrow additional funds for the deposit on your new home. Once the finance is in place you can no longer live in your old property, but you can let it out.

So, should you let to buy?

Becoming a landlord is a big step. Read our blog on letting out your current home and our step by step guide to becoming a landlord for more information, and to see if you think letting property is right for you.

If you have any thoughts or questions on let to buy or any other landlord-y matters, feel free to leave them in the comments section below.

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Amelia Vargo is an online marketing executive for CT Capital. Amelia writes for Turnkey Mortgages, Turnkey Landlords, TurnKey Bridging, TurnKey Life and Commercial Trust.