“Let to buy” (LTB) is a property strategy where a homeowner rents out their existing home in order to purchase a new one. It is popular in the UK among people who want to move to a new property but don’t want to sell their current one.
Here’s how it works:
- Renting Out the Existing Home: Instead of selling your current home, you let (rent) it out to tenants, turning it into a buy-to-let property. This can generate rental income to help cover the mortgage on that property.
- Buying a New Home: You then buy a new property to live in. This is financed with a residential mortgage.
- Mortgage Arrangements: Typically, you convert your existing mortgage on the first property to a buy-to-let mortgage. This is required by lenders if you’re no longer living there and renting it out. You then take out a new residential mortgage for your new home.
Key Benefits:
- No need to sell: You don’t need to sell your current property, which can be advantageous if the market conditions aren’t right or if you want to keep the property as an investment.
- Rental income: The rent from tenants can help pay off the mortgage on the original property.
- Property investment: You benefit from potential capital appreciation if property prices rise.
Key Considerations:
- Deposit for new property: Lenders may require a higher deposit (often around 25%) for the new property because you’ll have two mortgages.
- Stamp Duty: In the UK, if you buy a second property, you’re subject to a higher stamp duty surcharge of 3% on top of standard rates.
- Landlord responsibilities: Becoming a landlord means taking on the responsibility for managing the rental property, which includes maintaining the home, dealing with tenants, and adhering to legal obligations.
It’s an option for those who want to hold onto their existing home as an investment, while moving to a new one for personal reasons.