Let to buy mortgages

The short answer

Let to buy is not one product. It is two mortgages: a buy-to-let remortgage on the home you are leaving, and a residential mortgage on the home you are moving to. The buy-to-let part is judged on the rent. The new home is judged on your income, after the lender allows for the let property.

How it usually works

1. Your current home is valued and remortgaged onto a buy-to-let mortgage, often up to 75% of its value.
2. If you have equity, the remortgage can release some of it as the deposit for your next home.
3. You buy the new home with a residential mortgage.
4. Both completions are timed to happen together, so you are never without a home loan in place.

A worked example

Your home is worth £200,000 and you owe £80,000. Remortgaging at 75% loan to value gives a buy-to-let loan of £150,000, which pays off the £80,000 and releases about £70,000 before fees, enough for a deposit on the next home.

The rent has to support the bigger loan. At £900 a month, a 125% rental test at a 5.5% stress rate supports a loan of up to about £157,000, so this example passes. A 145% test, used for many higher-rate taxpayers, would support about £135,000, so you might need to borrow less. Try your own figures in the deal analyser.

What lenders look at

• The rent on the home you are letting, usually from a letting agent's written estimate.
• Your income for the new home, after allowing for any shortfall on the let property.
• Why you are letting. Lenders want a genuine reason, not a way round a missed sale.
• Equity and deposit. Most buy-to-let lenders want at least 25% equity in the let property.

Tax and costs

• Buying the new home while you still own the old one usually means the higher rates of stamp duty. See the stamp duty calculator.
• Rental profit is taxable, and individual landlords cannot deduct mortgage interest in full. See Section 24 explained.
• When you later sell the let property, capital gains tax may apply to the gain made while it was let.

Is it regulated?

Yes, in part. The mortgage on the home you are moving into is a regulated residential mortgage, and arranging let to buy together means advice on that home loan. We are not authorised to give regulated mortgage advice yet, so we cannot help with let to buy at the moment. Join the list below and we will tell you when that changes. For advice now, speak to an FCA-authorised mortgage adviser.

Common questions