Overview
What is let to buy?
Let to buy is a strategy where you convert your existing residential property into a rental property (buy-to-let), and simultaneously purchase a new home to live in. Rather than selling your current home, you keep it and use the rental income to help fund the costs of ownership while you move on.
It differs from straightforward buy-to-let in that it involves two simultaneous mortgage transactions: a BTL remortgage on your existing property, and a new residential mortgage on your next home. This requires careful planning and coordination, something we specialise in.
- Keep your existing property as an investment
- Generate rental income alongside your new home
- Avoid selling in a weak market
- Build a property portfolio over time
- Benefit from long term capital growth
- Flexible if plans change
The process
How does it work?
Let to buy involves two separate but coordinated mortgage applications, typically arranged simultaneously:
Step 1: BTL Remortgage on Existing Home
Your existing residential mortgage is replaced with a buy-to-let mortgage, or you obtain “consent to let” from your existing lender. The lender will assess whether the expected rental income covers their stress tested repayment requirements (typically 125-145% of the interest cost).
Step 2: New Residential Mortgage
You apply for a new residential mortgage on the property you’re moving into. Lenders will consider the rental income from your existing property when assessing your affordability, though treatment varies by lender, which is why advice matters.
Is it right for you?
Who is let to buy for?
Let to buy works best in specific circumstances. It’s most suitable for people who:
- Have equity in their existing home (typically 25%+ required for BTL)
- Want to retain their property as a long term investment
- Live in an area with strong rental demand
- Are financially stable enough to manage two mortgages
- Are moving to a larger or different property (not downsizing purely)
- Have explored the tax position (see below)
It’s not right for everyone, if your equity is limited, if rental yields in your area are low, or if the tax implications don’t stack up, selling may be the better option. We’ll give you an honest assessment.
Important note
Tax implications
Let to buy has important tax considerations that you should discuss with a qualified tax advisor before proceeding. Key areas include:
Stamp Duty
If you already own a property, your new purchase will typically attract the additional dwelling SDLT surcharge (currently 3% on top of standard rates in England and Northern Ireland), as you’ll own two properties at completion. This can be a significant cost.
Income Tax
Rental income is taxable. Mortgage interest relief for BTL landlords is now restricted to the basic rate of income tax (20%), regardless of your tax band. Higher rate taxpayers should take advice on the net return.
Capital Gains Tax
When you eventually sell your let property, it will no longer qualify for Principal Private Residence relief (as it’s no longer your main home). This means CGT may be due on any gain, factor this into your long term planning.
What you’ll need
Key requirements
Lenders assessing let to buy applications will look at several key factors. Understanding these before applying helps set realistic expectations:
Rental Income Coverage
BTL lenders typically require the expected monthly rent to be 125-145% of the interest cost (at a stress rate of around 5-5.5%). A rental valuation will be required as part of the application.
Equity in Existing Property
Most BTL lenders require at least 25% equity in the property being converted to let. If your LTV is higher than this, you may need to repay some of the mortgage before proceeding.
Clean Credit History
Both the BTL and residential applications require a satisfactory credit history. Adverse credit may limit options but won’t necessarily prevent you from proceeding, specialist lenders can sometimes assist.
Affordability
Residential mortgage affordability will be assessed on your earned income. Rental income from the let property may be used to offset the BTL mortgage commitments, but not always to increase residential borrowing.
Buy to let mortgages are typically interest only. You pay only the interest each month and repay the capital at the end of the term or on sale.
