Moving Home Without Selling, How Do Let to Buy Mortgages Work?

The thought of moving home can feel tricky, especially if you’re not sure whether to sell your current house. What if you want to keep it as an investment and move somewhere new? It’s possible with something called a Let to Buy mortgage! In this article, we’ll explain how it works and help you decide if it’s the right choice for you.

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Are you tied in with your current lender?

If you are tied into a fixed rate for another year or so then you firstly need to establish if you can take your current deal to another property – this is known as ‘porting your mortgage’. The majority of lenders allow porting, and it is generally fine when you are selling your current home. However, porting when you are looking to hang onto your property for investment may be problematic as not all lenders will support you with this.

What happens to my existing mortgage?

If you're thinking about moving home but want to keep your current property, a Let to Buy mortgage could be the solution. This type of mortgage allows you to remortgage your existing home and let it out, while freeing up funds to purchase your next property.

While often confused with Buy to Let, Let to Buy is specifically designed for those moving home and renting out their current property. Keep in mind that not all lenders offer Let to Buy mortgages, and you may face early repayment charges with your existing lender. Make sure to explore your options to find the best fit for your needs!

Moving Home, Can I borrow additional funds with a Let To Buy Mortgage?

When it comes to organising a Let to Buy (LTB) remortgage, just like a buy to let mortgage there are limits on how much you can borrow. The key factor in this process is the projected rental income from your current property. Do you have a good idea of how much your property can generate each month? Before making any decisions, it's wise to consult with local estate or letting agents to determine this figure.

If you're thinking about raising additional funds through a LTB remortgage it is worth remembering that selling your current home will give you greater buying power for your next property, as you're likely to have more money available for your deposit.

Will keeping my current property restrict what I can borrow for my next home?

Generally speaking, no, as most lenders will ignore a BTL mortgage providing the proposed rental income covers the new mortgage payment. Whether you are keeping your property or not, lenders typically offer you the same amount for your next home. In fact, you may be in a position to include your proposed rental income as part the affordability assessment for your next home, so you may in fact be able to borrow a little more than if you sold your home.

A few helpful facts about BTL mortgages:

• Interest rates and fees are typically higher than those offered for a residential mortgage

• They are more complex so seeking mortgage advice is recommended, including advice from a specialist tax adviser or accountant too

• Although not always limited to, the majority of lenders restrict the loan to 75% of the property’s value, known as Loan to Value (LTV)

• Although 75% LTV is typically what most lenders can offer, this will be very much dependent on the amount of rental income paid each month

If you are looking to move without selling your home you will also need to consider Stamp Duty Land Tax (SDLT), where you will incur an additional 5% when purchasing a second home.

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How much can I borrow with a LTB / BTL mortgage?

There are various reasons why Let To Buy may prove difficult, with the most common stumbling blocks being either the lack of equity in your current property or the rental income just not meeting the lenders Interest Coverage Ratio (ICR) calculations. An example of how a lenders ICR may look would be as follows:

Mortgage Amount x 6% (could be the lenders pay rate plus 2%) x 145%

Example:

£200,000 x 6.% = £12,000 annual mortgage interest x 125%* = £15,000 Annual Rent Requirement (£1250 each month)

*some lenders may adopt a higher rate of 145%, depending on your tax status / borrowing requirements

Looking for more information? Check out our Learning Centre for more helpful, including:

• How Do Buy to Let Mortgages Work

• Is Limited Company Buy to Let Right For Me?

• From Here to There, Tips on Porting Your Mortgage When Moving Home

As you can see securing a BTL / LTB mortgage can prove challenging, then add your new residential mortgage into the equation and you are left with plenty to think about! An experienced mortgage broker will very quickly provide you with a thorough understanding of your options and whether keeping your current home is achievable when moving on.

Ready to discuss further?

Speak to an Adviser now and see if Let to Buy could work for you👍

Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Not all Buy to Let Mortgages are regulated by the Financial Conduct Authority

Published by Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.