Affordability is judged on the amount of rental income you can expect to receive from your tenants, all lenders spoken to by FTAdviser agreed.
With Let-to-buy you effectively switch your existing residential mortgage to a buy-to-let deal, which is worked out based on the expected rental income of the property, not on your income.
Phil Rickards, head of BM Solutions, says this frees up your actual income, allowing you to take out a new residential mortgage on your new home.
He says BM Solutions assesses affordability of the applicant’s ongoing future residential costs as a responsible lender to ensure the transaction is affordable.
Providing you have sufficient equity in your home, Mr Rickards says you may even be able to release some of this to help you raise a deposit for your new home.
But Mr Rickards says you should bear in mind that let-to-buy mortgages are usually only available on a maximum of 75 per cent of the property’s value.
He says: “You will also need to show that the expected rental income is 125 per cent of the new mortgage payments, as lenders want to see you have a bit of leeway to account for rental voids and maintenance costs.”
To execute a let-to-buy arrangement on your existing property, Mark Bullard, head of sales at NatWest Intermediary Solutions, says you will need to apply for a standard buy-to-let mortgage.
At NatWest, Mr Bullard says 100 per cent mortgage cover is required on the let property.
Applicants need a letter from a local letting agent or estate agent that is ARLA-registered to show the expected rental income, Mr Bullard adds.
If it covers the mortgage cost then Mr Bullard says this payment can generally be disregarded from the affordability calculation for the new property.
If there is a shortfall in rent then Mr Bullard says this must be disclosed as a monthly commitment on the affordability calculator.
If you switch your client to a let-to-buy mortgage on the property you are moving out of, Rob Thomas, director of research at the Wriglesworth Consultancy, says you should expect the lender to assess the amount it will lend based primarily on the expected rental income and value of this property.
