Use this free let-to-buy calculator to work out how much equity you have in your current house and whether you could afford a second property based on your circumstances.
There are 3 parts to the calculator:
- Part 1: Existing House Data
- Part 2: New House Data
- Part 3: Overall Results
If you’re unsure how to use this calculator then continue to read the guide which covers everything you need to know about let to buy.
Don’t worry there’s no ‘gimme your email’ at the end of the calculator.
Let to Buy Calculator 🏡
If you’re unsure how to use this calculator then continue reading this guide which covers everything you need to know about let to buy.
What is Let to Buy?
Let-to-buy is when you purchase a new property on a standard residential mortgage while converting your existing residential property into a buy-to-let investment.
You rent out your existing property and purchase a new one to live in.
This differs from a standard buy-to-let mortgage, where the property is bought specifically for investment purposes.
With a let-to-buy mortgage, the process typically works like this:
- You apply for a let-to-buy mortgage.
- If approved, you buy a second property to live in while potentially using some funds released from the first property.
- When you have moved into your new property you can let out the original property.
- Now you have one residential mortgage for the house you live in and a buy-to-let investment property (your original property).
It’s important to note that let-to-buy mortgages can be more complex than standard residential mortgages and buy-to-let mortgages.
Interest rates and fees may differ from regular mortgages, and lenders may have specific criteria for eligibility.
The mortgage market is always changing so it’s best to speak to a mortgage advisor or broker for the most up-to-date information.
An advisor or broker will also be able to advise you on your specific situation.
Minimum Requirements For Let To Buy
The minimum requirements for let to buy can vary depending on the specific mortgage lender and the individual’s financial situation.
However, there are some common criteria that homeowners typically need to meet to be eligible for a let-to-buy arrangement.
Part 1: Does the existing home qualify
- You’ll need at least 25% equity in your current property
- Estimated monthly rent needs to pass Interest Coverage Ratio and buy-to-let stress tests.
- Is your credit history suitable
Part 2: Can you afford your second home
- Does your salary and deposit mean you can afford the purchase and mortgage payments of the new property?
- Is your credit history suitable?
Useful link: Buy to Let Stress Test Calculator
You’ll also want to show proof of intent to the lender to show you want to rent the first property and live in the second property.
Different lenders have different criteria and this also changes all the time, so it’s best to speak to a qualified mortgage advisor or broker to get the best deal for your situation.
A Let-to-Buy Example
Here’s an example of a let-to-buy process where you have enough positive equity in the first property to even consider doing the let-to-buy process.
Property 1: Switching to Rental
Property Value: £200,000
Mortgage Balance Remaining: £120,000
Equity in property (%): 40%
Equity in property (£): £80,000
Equity for 25%: £50,000
Excess equity above 25%: +£30,000
Estimated monthly rent: £1250
You could use the excess equity of £30,000 above the 25% equity threshold to prop up the deposit of your second property.
In this example, as long as the estimated monthly rent of £1250 per month passes the stress tests by the lender you could consider the let-to-buy process.
Property 2: New Residential
Property Value: £240,000
Deposit saved: £10,000
Equity bonus: +£30,000
Total Deposit: £40,000 ( £10,000 + £30,000 )
Deposit % = 16.67%
Stamp Duty: £7,200 (effective rate of 3%)
Salary: £50,000
Need to borrow: £200,000 ( £240,000 – £40,000 )
Borrowing multiple: 4x ( £200,000 / £50,000 )
Able to borrow: £162,500 to £237,500 (3.25x to 4.75x salary)
In this example, you can see that if the lender is willing to lend up to 4 times your annual salary (which a lot of lenders do) on the residential mortgage, you could go forward with the let-to-buy agreement.
The 16.67% deposit is fine for residential mortgages because you can get mortgage products starting from 5%-10% deposits.
Remember you need both properties to be in line with the requirements for their respective mortgages.
Let-to-Buy Deposits
As mentioned earlier you’ll need to meet the minimum requirements for the mortgages on the existing property you plan to rent out as well as the new property that you plan to live in.
The Existing Property: Buy-to-let Mortgage
For the existing property, it is essentially switching to a buy-to-let mortgage which has (in general) a 25% minimum deposit.
If you have at least 25% equity in your existing property then the deposit for this property is already sorted.
If you have less than 25% equity in your existing property you will need to put down some extra cash to prop it up to 25% in order to meet the minimum criteria.
If you have more than 25% equity in your existing property then you can take the excess equity and use it to bolster your deposit for your new residential property.
The New Property: Residential mortgage
For the residential mortgage on your new property, you do not need a 25% deposit.
Since it is a residential mortgage you can start with a deposit that is as low as 5%-10%.
Of course, with a residential mortgage, you have to consider your personal income to see how much you can borrow.
You may need to put down a higher deposit if your borrowing limits are not enough.
Consent to Let vs Let to Buy
Consent to Let
Consent to let is when you don’t change the mortgage product of your original house.
You simply ask the lender for permission (consent) to let it out. This is normally for a temporary basis generally within a 6 month to 2 years time frame. (But some lenders will allow it until the end of the mortgage.)
Even though your mortgage product may not change you may have to pay some fees to the lender for consent to let.
With consent to let it’s expected that you will return to the property to live in it and you are not required to buy a new residential property to get consent to let.
Reasons for getting consent to let could include:
- Going travelling
- You’ve taken a job contract in a different location
- You’re a member of the military and have been called up for a tour of duty
- You’re moving in with a family member who needs care
Let to Buy
Let to buy is different to consent to let because you change the mortgage product with your lender and you are expected to move out from the property and NOT return.
If you expect to return to the property to live in it within 1-2 years then consent to let may be a better option as it is less complex.
With let-to-buy you are expected to be buying a new property on a residential mortgage.
Is Let to Buy Right for Me?
A let-to-buy mortgage is for people who want to buy a new property but keep their existing property as an investment property (or just don’t want to sell it at this moment).
There are various scenarios in which someone might choose to use a let-to-buy mortgage:
Upsizing
You want to buy a bigger home but want to keep your existing home as an investment.
Relocation
You need to move to a different area but want to keep your existing home as an investment.
Investment Opportunity Through Positive Equity
If you have enough positive equity in your existing home, you can use some of it to support purchasing a new property while keeping the existing home as an investment.
Difficulty Selling
In a slow housing market, some homeowners may struggle to sell their property at a desirable price.
Rather than selling at an undesirable price, you could opt for a let-to-buy arrangement.
This would let you move into a new property while renting out your existing one until market conditions improve to your liking.
Couples Moving in Together
Perhaps you’re in a couple and you both own a home each.
You could each get a let-to-buy mortgage on your existing homes and obtain a residential mortgage for a new home that you both move into together.
Let to Buy Mortgage Lenders
There will be specific mortgage lenders in the UK who offer let-to-buy mortgages, but the availability of products will always be changing.
Remember that let-to-buy mortgages can be more complex than standard residential mortgages, and the criteria for approval may vary among lenders.
It’s essential to compare different lenders, rates, fees, and terms to find the most suitable let-to-buy mortgage for your needs since your current lender might not always be the best fit.
When looking for let-to-buy mortgage lenders, consider the following steps…
Mortgage Comparison Websites
Utilize mortgage comparison websites, which can help you find lenders offering let-to-buy mortgages.
If the mortgage lender doesn’t outwardly advertise let-to-buy, check tot see if they offer buy-to-leets.
If they do, then get in touch with them and enquire about let-to-buy as a let-to-buy is almost identical to getting a buy-to-let on the original home.
These websites often list a range of mortgage products from various lenders.
Speak with a Mortgage Advisor
Consulting with a mortgage advisor can be beneficial, as they have knowledge of the mortgage market and can provide personalized advice based on your financial situation and requirements.
They can guide you to lenders who offer let-to-buy mortgages and help you navigate the application process.
If you value your time then this is the best route.
Use sites like the one linked below to find an advisor/broker.
Contact Lenders Directly
If you have identified potential lenders offering let-to-buy mortgages, reach out to them directly to discuss their products, terms, and eligibility criteria.
Let to Buy Stamp Duty
The amount of stamp duty payable depends on the purchase price of the property and whether it is a primary residence or an additional property (such as a buy-to-let or second home).
Since you will be buying a second property while still owning your first property you will pay the 3% extra surcharge in Stamp Duty on the new property that you buy.
- Use this stamp duty calculator to help you.
Other regions in the UK, such as Scotland and Wales, have their own land transaction taxes that differ from Stamp Duty Land Tax in England and Northern Ireland.
Let to Buy vs Buy to let
“Let to buy” and “buy to let” are two different property investment strategies, both involving the rental of residential properties, but with distinct purposes and processes:
Let to Buy
You already have a property.
Move out of property 1 and buy property 2.
You rent out property 1 and live in property 2 (potentially using some equity from property 1 to help purchase property 2).
Key points about “Let to Buy”:
- The homeowner retains ownership of the existing property and becomes a landlord by renting it out to tenants. The first property switches to a buy-to-let mortgage.
- The rental income from the existing property may help cover the mortgage costs or provide additional income.
- The homeowner typically needs to apply for a separate residential mortgage for the new property and a buy-to-let mortgage for the existing property and must pass the criteria for BOTH mortgage types.
Buy to Let
You don’t have the property yet.
Apply for buy to let mortgage for a new property.
If you pass the criteria you get a buy-to-let mortgage, purchase the new property and rent it out.
You don’t need to apply for a residential mortgage anywhere in this process.
Key points about “Buy to Let”:
- The properties are bought as investment assets, and the primary goal is to generate rental income and achieve capital growth.
- Mortgage lenders typically offer specific buy-to-let mortgages, which have different eligibility criteria and interest rates compared to residential mortgages.
In summary, “let to buy” is when a homeowner converts their current residence into a rental property while purchasing a new home for themselves.
But “buy to let” is a pure investment strategy where individuals buy residential properties with the intention of renting them out to tenants.
Both strategies involve being a landlord and renting out properties, but their underlying motivations and the process of obtaining mortgages differ.
Advantages & Disadvantages of Let-to-buy
Advantages of Let to Buy
Retain Ownership: You can keep ownership of the existing property, even as you move to a new one.
Rental Income: Cover mortgage costs on the property or even provide additional cash flow.
Future Flexibility: You could move back into the original property in the future (by changing the mortgage type back to residential)
Timing: If now is a bad time to sell you can hold on to the property till a later date.
Disadvantages of Let to Buy
Responsibilities of Being a Landlord: As a landlord, you have legal obligations to keep up with.
Rental Risks: Risks such as potential rental arrears, property damage, and voids.
Financing: Have to simultaneously qualify for both a buy-to-let mortgage on the current property and a residential mortgage on the second property.
Market Risks: The property market can fluctuate, and the value of the existing property may not perform as expected.
Unforeseen Changes in Regulations: Landlord regulations and tax rules can change over time.
Remember to consider your own financial situation, long-term goals, and willingness to take on the responsibilities of being a landlord before proceeding with a let-to-buy arrangement.
Commitments as a Landlord
If you become a landlord there is regulation that you must follow to ensure that you’re within the law.
For the most up-to-date info, it’s recommended that you follow the guidance on the GOV UK website.
As a quick overview, you will need to make sure you:
- keep your rented properties safe and free from health hazards
- make sure all gas equipment and electrical equipment is safely installed and maintained
- provide an Energy Performance Certificate for the property
- protect your tenant’s deposit in a government-approved scheme
- check your tenant has the right to rent your property if it’s in England
- give your tenant a copy of the How to rent checklist when they start renting from you (you can email it to them)
Further Reading
Here are two useful videos that go over the let-to-buy process if you want to recap this article in video form.
Useful Videos
Video 1:
Video 2:
Hopefully by now, you have a better idea of the let-to-buy process and whether it could work for you.
If you’re unsure about whether property investment is right for you then read our guide on why investing in property can be good.
If you need more resources for property investing, check out the property investing toolbox.