Let-to-buy mortgages explained: Buying a new home without selling yours

How does let-to-buy work?

Let-to buy-isn’t one special product, it’s just two mortgages working together so you can move without selling. Don’t worry, it’s simpler than it sounds.

The two mortgages explained:

1. Your current mortgage switches to a let-to-buy mortgage, or you get consent-to-let from your existing lender (more on this below). Both options mean you can rent out the property without breaking your mortgage terms.

2. You take out a residential mortgage on the new home you're buying. This one works like any standard mortgage, based on your income, deposit and affordability.

So you'll end up with:

• A let-to-buy mortgage on your existing property

• A residential mortgage on your new home

• A tenant paying rent on your old property

• Three moving parts, but with the right adviser they all come together smoothly.

Why do I need a let-to-buy mortgage?

You will need a let-to-buy mortgage as you can't legally rent out a home on a standard residential mortgage. Residential mortgages are designed for people living in the property themselves, so lenders don't allow long-term letting under those terms.

Let-to-buy is the solution to this problem. Think of it as your way to renting out your home while buying another, all above board.

Releasing equity from your current home for the deposit

Here's a nice perk of let-to-buy: many people use the equity they've built up in their current home to fund the deposit on their new home.

Even better, if your home has grown in value or you've paid off a fair chunk of your mortgage, you could be sitting on more borrowing power than you realise.

For example:

• Your current home is worth £400,000

• Your mortgage is £150,000

• You release £50,000 of equity

• Your new let-to-buy mortgage is £200,000 (£150,000 + £50,000)

• You use the £50,000 as the deposit for your next home

Let-to-buy vs buy-to-let: what's the difference?

Both let-to-buy and buy-to-let involve renting out a property, but they're designed for different situations.

Let-to-buy is for people who already own a home and want to buy another without selling. Buy-to-let is for people buying a property as an investment to let out.

The mortgages look similar, but the starting point is different:

If you're not sure which route fits, a mortgage adviser can talk you through both and help you find your best next step.

Speak to a mortgage adviser today

Is let-to-buy right for you?

Let-to-buy has helped plenty of people in situations just like the ones below, so take a look and see if one sounds familiar.

Broken chains

Perhaps you've found your dream home but your current property hasn't sold yet. Or maybe a buyer has pulled out and your chain has collapsed. Absolute nightmare.

Either way, don't panic, let-to-buy can keep your move alive. Rather than losing the property you love, it could let you move ahead and rent out your existing home instead.

Moving in with a partner

Moving in together is exciting, you only have to do half the washing up! If both of you own your individual homes, let-to-buy gives you options. Rather than selling your place to move in with your partner, you could rent it out and keep it as an investment.

Make sure you chat everything through together first: the mortgage, rental income, tax position and how the properties fit into your plans as a couple.

Relocating temporarily

Moving for work but planning to come back? Let-to-buy means you get to keep your home and rent it out while you're away, so it's there waiting for you when you return.

Keeping your property as a long term investment

Some people just love their home too much to sell. Let-to-buy allows you hold onto it while still moving forward with your next chapter.

If any of these sound like you, it's worth exploring your options. A mortgage adviser can talk through your situation and let you know if the figures add up for you.

Let-to-buy mortgage criteria

Lenders look at let-to-buy a little differently to a standard mortgage, so here's what they'll typically check:

• Maximum loan-to-value – usually 75-80% on the let-to-buy side. Your new residential mortgage will have its own LTV rules too.

• Rental income cover – this is the check lenders use to make sure the rent from the property you let covers the mortgage payments. Most lenders want the expected rent to be at least 125%–145% of the mortgage payment.

• Lender stress tests – stress tests use a higher, hypothetical interest rate (often 5.5%–6%) to see if the mortgage would still be affordable if rates rise. Your rent has to cover the mortgage at that stressed rate, not just the rate you’ll actually pay.

• Minimum income requirements – many lenders ask for a minimum income outside of any rental income, often around £25,000

• Evidence you’re buying at the same time – lenders usually want to see that you're moving to a new residential property, not just switching your existing home to buy-to-let.

• Maximum age limits – buy-to-let mortgages often run to age 75 or 80. Residential mortgages vary, but lenders will check whether the term fits your plans.

Lenders generally look for different things, but that's good news too, it means there's likely to be a mortgage out there that fits you. A mortgage broker can help you find the right mortgage to make the sums add up.

What does let-to-buy cost?

There's more to budget for than just two mortgage payments, but with a clear picture upfront, there won't be any surprises. Here's a breakdown of the main costs.

Stamp Duty surcharge

Let-to-buy stamp duty can bump up the cost a bit. Because you'll own two properties, you'll usually pay the additional Stamp Duty surcharge (currently 5%) on your new home, on top of standard rates.

Use our Stamp Duty Calculator to see how much your stamp duty will be.

Reclaiming the surcharge

Here's some good news: if you sell your old home within three years, you can reclaim the surcharge. This can be a big help if you only plan to rent out your current home for a short period.

Interest rates and product fees

Let-to-buy rates are usually a bit higher than residential rates. You may also pay:

• Product fees

• Valuation fees

• Legal fees

Early repayment charges (ERCs)

If you're switching your current mortgage before the deal ends, it's worth checking whether an early repayment charge applies. This can be a significant cost, so working out the sums before you commit means you can move forward knowing your finances are heading in the right direction.

Landlord costs

Once you become a landlord, there are a few extra costs to factor in beyond the mortgage:

• Letting agent fees

• Landlord insurance

• Repairs and maintenance

• Safety checks

• EPC costs

• Other legal and compliance costs

• Periods when the property is empty

A property may look profitable when you compare the rent with the mortgage payment, but you need to factor in these extra costs too. That way you get the full, accurate picture.

Tax on rental income

You'll pay income tax on rental profit. You can deduct some costs, but mortgage interest relief is a little limited. A mortgage adviser can help you work out the numbers so you feel confident about affordability from day one.

Consent-to-let: the alternative to a let-to-buy mortgage

If you want to rent out your current home but don’t need to release money from it for a new deposit, you might have an easier option: asking your lender for ‘consent to let’.

This gives you permission to rent out the property while keeping your existing residential mortgage.

A few things worth knowing:

• Not all lenders offer it

• There may be a fee

• It's usually temporary

• You may pay a higher rate

• You can't release equity

Consent-to-let works best for short term moves, while let-to-buy is better suited to long-term plans or when you need to release equity.

Either way, check your mortgage terms before renting out your home. Letting a property without your lender's permission could put you in breach of your mortgage conditions.

Pros and cons of let-to-buy

Let-to-buy can solve a tricky problem. But like any big decision, it's worth weighing up both sides.

The pros

• You can move without selling your current home first

• You may be able to release equity to fund your new deposit

• You can keep your existing property as a potential long-term investment

• Rental income can help cover the mortgage

• It can be useful if you are relocating temporarily

• It can remove some of the pressure of a property chain

The cons

• You’ll have two mortgages

• You become a landlord

• Rental income is not guaranteed

• You may face empty periods between tenants

• There are extra landlord costs and responsibilities

• You’ll usually pay the Stamp Duty surcharge

• Mortgage rates and fees can be higher

• You could face an early repayment charge

• Tax can reduce the return from renting out the property

Our mortgage advisers can talk you through your let-to-buy, consent-to-let and buy-to-let options.

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How to apply for a let-to-buy mortgage

The process might look complicated on paper, but you won't be doing it alone. An adviser can help you handle both mortgage applications and make sure the figures work together seamlessly.

A typical let-to-buy timeline

1. Work out your current property's value. You need to know roughly what your home is worth and how much you still owe on your mortgage.

2. Work out the expected rent. Get an idea of how much a similar property could achieve locally. A letting agent should be able to help.

3. Check your finances. Look at your income, debts, regular spending and the deposit needed for your new home.

4. Speak to a mortgage adviser. They can check which lenders offer let-to-buy mortgages and whether you're likely to meet their criteria.

5. Get a mortgage in principle. If suitable, this gives you a helpful indication of your borrowing power.

6. Make an offer on your new home. Once you know what you can potentially borrow, you can make a realistic offer.

7. Submit the mortgage applications. Your adviser can help you apply for both the let-to-buy mortgage and residential mortgage.

8. Complete your purchase. Once the mortgages are approved and the legal work is complete, you can move into your new home and arrange to let your old property. That's it, you're there.

Documents you'll need

• Proof of income, such as payslips (PAYE) or tax calculations (if you’re self-employed)

• Bank statements

• Proof of your deposit

• Details of your current mortgage

• ID and proof of address

• Evidence of the property you're planning to buy

Speak to a let-to-buy specialist

Let-to-buy can feel like a lot to take in, but you don't have to work it all out on your own. A mortgage adviser can talk you through the numbers, check which lenders suit your situation and help you keep both moves on track, every step of the way.