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Letting property

Let to buy

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Let to buy is an even newer phenomenon than buy to let and one which many people are not even aware of. This type of scheme allows you to buy a new home and let your old one. There still aren't a huge number of lenders offering let to buy schemes, so you may have to hunt around to find one.

Why would I do this?
As long as the rental income on your existing property will pay your old mortgage, lenders who offer this type of loan will usually offer you a mortgage for the new property based on the normal income multiples, even though you already have an existing property. This means that you end up with two mortgages at normal owner-occupier rates, therefore avoiding the slightly more expensive buy-to-let mortgages.

You will normally need only 5 - 10 percent as a down payment under a let-to-buy scheme. This is considerably less than the 20 percent that is normally required with a buy-to-let mortgage and can be in itself a good reason to go for this type of scheme.

In some areas of the country, it may be extremely difficult for some budding landlords to get a foothold in the property market, for reasons such as the erosion of rental yields by high property prices. But if the property you own has been yours for some time, mortgage payments may be significantly lower than they would be on a similar property bought now. This may mean that your existing home offers the potential for a much better rental yield than would a newly bought property.

When would I do this?
If your circumstances have changed, for instance your kids have moved away leaving you in need of a smaller more manageable property for yourself, then it can be a good idea to move into a new property yourself and let your existing one out.

Another fairly common reason for this sort of scheme is that some people want to move away from their existing area for a period of time, but not give up the property. It may be a home that has been in the family for a long time, or you may have a particular affinity for an area. You no longer want to live in the property, but nor do you want to lose it for good.

In such circumstances let to buy can be a good option. You get the benefit of retaining your asset, whilst someone else pays the mortgage for you, as well as having money left over.

Points to remember
Make sure that you only buy a property that you are happy to live in for a number of years - at least long enough so that the price will appreciate enough to overturn the costs of purchase.

Under the terms of your existing mortgage, some lenders will not allow you to let your original property commercially. If this is the case and you are desperate to follow this course of action, you can always remortgage your original property with a different lender. Just check the finer details in the mortgage documentation or speak to a financial adviser to make sure that you are able to do this without penalty. Some lenders may increase your interest rate slightly, to bring it into line with other buy to let mortgages.

You can even let to buy if you do not have a deposit, assuming that you have a reasonable amount of equity in your own home. You can always remortgage your existing home to cover your current mortgage, but also raise an additional sum whilst you are at it, in order to put down as a deposit on the new home you are buying.

Under no circumstances should you pursue a let to buy scheme without letting your existing lender know. The worst case scenario doesn't bear thinking about, as your are essentially in breach of your mortgage terms. However, more likely is that they will demand backdated payment from you once they find out, equivalent to the total extra amount you would have paid under a buy to let mortgage, plus interest of course.

You should also tell your buildings and contents insurer, as your existing policy may not cover you for the perceived high risk of having tenants live in your property. Again, avoidance of this is not clever, as you could lose everything if the house burns down and you find your policy has been invalidated.

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