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Pros and cons of let-to-buy

This article is part of
Guide to Let-to-Buy

Typically, if you visit a high street lender, due to the somewhat prescriptive way most enquiries are dealt with, Ray Boulger, senior technical manager at John Charcol, says there is very little chance that the option of let-to-buy would even be discussed, let alone explored with any degree of seriousness.

Yet, Mr Boulger says if you are looking to improve your buying power, limit your stress, take control of when you sell and/or boost your retirement income, then for some people let-to-buy is a genuinely compelling solution.

It is designed to support the needs of homeowners who want to remortgage their main residence to allow them to let it out to facilitate the purchase of their next property as their main residence.

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Let-to-buy is a growing sector, according to Phil Rickards, head of BM Solutions, and one that provides flexibility for a growing number of borrowers. Mr Rickards says it has become more popular in recent years as a stepping stone into the buy-to-let market.

In the right circumstances, he says it means that homemovers can take advantage of strong demand in the rental market by keeping their initial property as an investment for the future.

The pros and cons of let-to-buy depend on why you are planning to use this type of mortgage and your general financial circumstances, according to Rob Thomas, director of research at the Wriglesworth Consultancy.

By opting for a let-to-buy mortgage, Mr Thomas says you are increasing your exposure to the housing market.

If house prices are rising and you receive a good rent, Mr Thomas says this can be financially advantageous.

But he warns it is likely to mean your total mortgage debt will be substantially greater and even with rent coming in this could put a strain on your budget, particularly if mortgage rates rise.

Mr Thomas says: “You should consider whether your old home works well as a rental property by considering the level of rental demand and the rental yield it would generate (rent as a percentage of the value).”

Mark Bullard, head of sales at NatWest Intermediary Solutions, says it is fair to say that there is sometimes a little confusion of what let-to-buy is.

But Mr Bullard says let-to-buy is ultimately where a mortgage borrower retains ownership of their existing home to rent it out to tenants to enable them to buy a new property for themselves and their family to live in.

He says they achieve this by remortgaging their existing property on to a buy-to-let mortgage.

Mr Bullard says while a buy-to-let mortgage specifically enables you to purchase a new property so that you can rent it out to tenants who will pay you a rental income, a let-to-buy mortgage enables you to rent out your existing property so that you can then afford to buy a new property.

Ultimately, Wriglesworth’s Mr Thomas says let-to-buy needs to evolve into buy-to-let if you need this type of loan for an extended period.