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Guide to Let-to-Buy
Your IndustryJun 26 2014

Suitability of a let-to-buy mortgage

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A let-to-buy mortgage can be a good solution to a number of different scenarios, according to Mark Bullard, head of sales at NatWest Intermediary Solutions:

1) Your client may need to move within a certain timeframe because of a growing family but are struggling to sell their existing property because the market is slow or stagnant and they aren’t getting much interest from prospective buyers.

2) They may need to move quickly because of a job relocation, but current market prices are depressed which would mean they wouldn’t extract the best value from the sale of their current property.

3) The client may have found their dream house that they do not want to lose but are struggling to sell their current property.

4) The rental market in the area where the client currently lives may be in very good health enabling them to rent out their existing home for an attractive amount.

Sometimes Mr Bullard points out this can be for more than their monthly mortgage repayments.

5) There is also the opportunity for capital appreciation. If the client thinks that their existing property has good potential to increase in value over the longer term or that they might want to move back there in the future they may take the let-to-buy option.

6) Downsizing is another reason for using let-to buy.

People with a little or no mortgage on their existing property in a city wanting to move into the country or to a smaller residence, may decide that the likelihood of a rise in house values and the high demand for rented property where their current property is, would mean that by renting it out they could earn an income that would more than cover their repayments on the new property.

7) Couples who both own existing properties want to buy one together but decide to keep one or both of their existing properties as investments.

People who want to move in with a new partner often consider letting their existing home, according to Rob Thomas, director of research at the Wriglesworth Consultancy, as do some who are finding it hard to sell.

People who are moving to another part of the country but believe they may wish to return might want to keep their existing property, Mr Thomas adds.

In recent years, geography has also played a part, according to Mr Thomas, who says those moving out of London have been concerned that rising house prices might make it hard to return if they sell their London home.

Timing is also a key factor with opting for this type of home loan.

Phil Rickards, head of BM Solutions, says: “With let-to-buy you control when you sell, and it doesn’t have to be timed perfectly with buying another home.”

Ultimately let-to-buy helps mitigate the problems of chains, enables borrowers to sell a property at a time that suits them, and is increasingly used as an opportunity to bolster retirement income.

Last year John Charcol reported a significant increase in let-to-buy activity in 2012.

Ray Boulger, senior technical manager at John Charcol, said: “Our experience is that the popularity of let-to-buy has been progressively increasing since the nadir of the buy-to-let (BTL) sector in 2009.

“I think this is primarily attributable to home owners’ renewed confidence in the housing market, coupled with the increasing demand for rental property. This view is supported by another trend we have seen over the last few months - an increasing number of expats buying one or more investment properties in the UK.

“Confidence in the buy-to-let market appears to be gaining more traction as a result of ongoing falls in mortgage rates coupled with steady or increasing rental values.

“Thus, even ignoring the possibility of a geared capital gain in due course when the property is sold, the annual return from an investment property has improved significantly over the last few years at a time when savings rates have fallen sharply.”