ALL YOU NEED TO KNOW ABOUT LET TO BUY MORTGAGES

When you apply for a let to buy mortgage, you will be in a halfway house-type scenario – buying your new home whilst letting out your previous home. These normally require two mortgages with the same lender. A buy to let mortgage on your former home and a standard residential mortgage on the new home. Let to buys can have their issues, but despite the risks and costs, it does suit some people – but not everyone. This is not a process that most people go through.

    

OUR EXPERTISE

HOW DOES A LET TO BUY MORTGAGE WORK?

For most people, buying and selling a home will require the selling process to be completed before the buying begins. However, in certain situation, in the case of a new job relocation, for example, an individual may need to purchase a new home before they have time to sell their old one. This is when a let to buy mortgage is required – you let your old home out to allow you to buy your new home.

This procedure also helps anyone whose home value has gone down. In the hope that the price will re-adjust, letting out the property is a good way to bide your time and make some money off it.

Let to buys operate on two mortgages –a buy to let and a standard mortgage.

The lender allows you to raise the deposit for the new property by taking equity out of the original home. However, the buy to let remortgage repayments will go up, so you need to make sure your rental yield more than covers your costs.

On top of this, you will need to make sure that there is remaining equity in the building to meet your lender’s minimum loan to value (LTV) ratio requirements.

And as part of the rules with having owning a second home, you will be liable an additional 3% stamp duty. This could have a significant impact on the funds you have for your move. However, if you’re able sell your former home within three years, this will be refunded.

WHAT ARE THE RISKS OF A LET TO BUY?

As mentioned, carrying out a let to buy can expose you to some costs that you may be able to avoid in a standard buy and sell.

The usual risks that homeowners face when they choose a let to buy:

– Their original home decreasing in value- Extra stamp duty costs

– The possible vacancy of the original home leading to stretched finances covering two properties

– Let to buy rates are higher than standard mortgage rates

– Few lenders offering let to buy deals, so less competition

"Hip has incredible potential. It brings accessibility and transparency to the property market for owners, occupiers, investors and developers, and allows them to take control and leverage the balance of their debt to equity to their own advantage."

Paul Danks,

Newmark Grubb Knight Frank

“HiP could solve the UK housing crisis”

Peter Bill,

Author of Planet Property

"It’s a game changer, and a very exciting one."

Sophie Eastwood,

Global board director of Young Entrepreneurs in Property (YEP) and founder of specialist property PR consultancy, Holistic

HiP as let-to-buy alternative

HOW COULD HIP HELP WITH YOUR LET TO BUY?

As we’ve learnt, let to buys may be the only viable alternative in some situations, but will come with their fair share of risks and costs.

So how does a platform like HiP help to ease the burden?

For anyone considering a let to buy, HiP can provide invaluable help in a number of ways

– We can allow you to access the equity in your home without extra borrowing, allowing you to raise the much needed deposit for your new home.

– We can provide you with an affordable finance package to allow you to own your second home.

– If you’re buying a second home, our network of investors can help contribute to provide you with more scope on the type of house you move into.

And this is just a start of what HiP could do for you

These are just a few of the scenarios where HiP can step in and help. If you’re thinking about carrying out a let to buy, contact us and find out more about our role in helping a homeowner buy a second house.

HOW YOU BENEFIT WITH HIP

HiP is the NEW Way
to finance property

HiP Property: Our Aims

Reinvent the way you look at property investment

HiP is hugely beneficial to property owners, changing the way we can use bricks and mortar into something with far more fluidity than ever before. It is a debt and equity exchange, with investors all over the world interested in putting their money into property.

Turn Your Property Into a Bank Account

For you, this means a democratised property market; withdraw money from equity without moving, borrowing or losing ownership, use your equity to cover your monthly mortgage repayments, or trade your equity against your mortgage.

Flexibly in the high-yield property markets without limits

We allow you to do all this, and much more, without the penalties, costs and charges that a traditional lender would impose. Whatever your property investment or finance needs may be, HiP is on hand to help you take your next step.

HiP is regulated by the FCA

HiP UK will be regulated by the FCA*

And have an agreed licence for trading in the UK and Europe. *As we go live these permissions are being reviewed.

HiP is based in London

HiP UK is based in London.

HiP's 20+ staff operate from Camden, London. With registered address in Bristol.

HiP is award winning

HiP is award winning

We have won an awards and been shortlisted for more. We came second in the worldwide PropTech Innovation Awards and as Bronze in the Digital Impact award 2017 for “Best use of digital by sector”.

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Just fill out the form on this page now, and you’ll be the first to find out about HiP, which we are busy creating. We can’t wait for you to join the property revolution.

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Frequently Asked Questions

WHAT IS THE LAW AROUND UK BUY-TO-LET MORTGAGES?

It’s well worth finding out about the rules surrounding buy-to- lets before you make the decision to apply. Borrowers are subject to more stringent ‘stress tests’ on their buy to let mortgage applications. According to the Bank of England, this is in a bid to reduce irresponsible lending. Lenders will review your entire portfolio when making a decision on one mortgage application. This has caused problems with those landlords who may have one or two properties underperforming, profit-wise. Even if the rest of your portfolio is more than making up for this small shortfall, it could be detrimental to your mortgage application.

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CAN YOU LET A PROPERTY IN THE UK WITHOUT A BUY TO LET MORTGAGE? WILL THE BANK FIND OUT?

If you own a property and rent it out, it is advised that you inform your mortgage lender as soon as possible about this change in circumstances.
Renting out your property on a standard mortgage will be infringement of the legal conditions of your contract, and you could face severe consequences.
Since 2013, banks and lenders have been chasing ‘accidental landlords’ and checking any properties which have been advertised on the rental market without their consent.
Letting your lender know about your wish to let to a third party is easily arranges, and will require you to obtain a ‘consent for lease’ document from your bank.

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CAN I GET A BUY-TO-LET MORTGAGE WHILE I HAVE BAD CREDIT?

They will usually demand a larger deposit and potentially higher rates. It is usually easier to obtain a buy to let mortgage with a less than gleaming credit score than a standard mortgage as you will be covering the mortgage repayments with the rental yield.
However, HiP allows borrowers with bad credit to get on to the buy-to- let ladder far more easily than most traditional lenders.

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How does a buy-to-let mortgage work and are they good?

A buy to let mortgage traditionally works by calculating the rental yield of a property to see if its workable with the mortgage repayments. Once the agreement has been worked out, you’ll pay a deposit to secure the mortgage. During this time, you will find tenants that can fill the property, ideally credit check them and get them to sign a tenancy agreement. They will then cover the cost of the mortgage repayments each month. To make it worthwhile, there should be extra, normally 25% extra, for you to use as profit or invest back into the house on any repairs.

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In the UK, if I get a mortgage, how long do I have to live in the property until I can rent it out?

Depending on the terms and conditions of the mortgage, you can rent the house out at any time. However, some lenders will refuse point blank to change a particular mortgage deal into a buy-to- let, so it is important to read the small print and discuss the possibilities when you take out a standard mortgage.

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Can I buy a property on buy to let and rent it to myself (UK)?

Depending on the terms and conditions of the mortgage, you can rent the house out at any time. However, some lenders will refuse point blank to change a particular mortgage deal into a buy-to- let, so it is important to read the small print and discuss the possibilities when you take out a standard mortgage.

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Is it better to get an interest only or repayment mortgage for a buy to let property?

Most landlords will choose an interest only mortgage over a repayment mortgage for their buy to lets.
The main reason for this is that landlords invariably see their properties as long term investments.
Interest-only mortgages are also flexible and tax-efficient – even though the tax rules on buy to lets is changing.

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The tax regulations around buy-to-let mortgages in the UK changed last year. Is it still profitable to do buy-to-let?

Profound changes to the way buy to let mortgages work have dramatically altered the livelihoods of a lot of property landlords. In 2017, changes to the law made it no longer possible for higher rate taxpayers to offset all their mortgage interest against rental income before working out what tax they owed. This led to higher tax bills, even if their income had not changed.

This is being phased through to 2020, where it will be replaced by a 20 percent tax credit.

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What do banks look for to approve an applicant for a buy to let mortgage?

Banks and lenders will look at a number of things when approving you for a buy-to-let mortgage. These include:
Your credit score
Your income
Your spending habits
Any criminal records

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Can You Get Buy To Let Mortgage As First Time Buyer?

While it’s totally possible to have your first mortgage as a buy-to- let, most lenders prefer borrowers who have had a standard mortgage prior to taking on a buy-to- let mortgage.
If you are approved, you will have to prove that you are not living in your own buy-to- let, and you will also have to pay a bigger deposit and higher rates than a standard mortgage.

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How are repayments calculated in a buy to let mortgage?

Repayments on a buy-to- let all depend on how much you’ve been approved to borrow. Your mortgage will be based on the amount of rental income that the property can expect to bring in.
Repayment amounts will differ from lender to lender, depending on the mortgage deal, but it will be calculated by working out the value of the house and the expected monthly yield from rent.

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