Posted 9 September 2015 by Keith Osborne
Selling your home is often one of the major obstacles to you being able to relocate to another part of the country. If housing market conditions are difficult in your area it can be a struggle to offload your property, meaning you may not be able to finance your new purchase.
However, a ‘let-to-buy’ mortgage might be the answer. Here, we explain what a let-to-buy mortgage is, how it works and how it could help you to move home.
What is let-to-buy?
Let-to-buy is the opposite of a buy-to let mortgage. Rather than taking out a mortgage on a new property with the intention of letting it out you instead rent out your current home – often taking out a new mortgage in the process – before buying a new property to live in.
Let-to-buy is not just designed to help you if you can’t sell your home. You may also want to keep your existing property for other reasons. For example, you may intend to relocate for a few years but then return to your original location.
How does a let-to-buy mortgage work?
Often, home movers need to access some of the equity in their current home in order to fund the deposit for a new purchase. This is typically done by taking out a buy-to-let mortgage on the existing property. You can then take out a standard residential mortgage on the new property.
The mortgage on your existing property will typically be based on the rental income that the property is expected to generate, while your new mortgage will be based on your income and outgoings.
How you’ll benefit from let-to-buy
There are lots of benefits to a let-to-buy mortgage. Firstly, structuring your mortgages in this way can help you to move home when you can’t – or don’t want to – sell your existing property.
By keeping two properties you also benefit from potential price growth on two homes and there are some Capital Gains Tax breaks. You may also be able to generate some surplus rental income.
If you are considering a let-to-buy mortgage then you should bear in mind that you will have to pay both mortgages in the event that you don’t have a tenant for a period. In addition, affordability checks on new mortgages are now stricter than ever and so not all lenders will agree your new mortgage if you have another property and mortgage in the background.
Seeking advice from an independent mortgage broker can help you to find the right solution for your circumstances.