In this blog, we will cover how you can retain your existing house, rent it out and buy another home to be your main residence.
There are two stages to cover:
1) EXISTING LENDER / EXISTING PROPERTY
You can approach your existing lender for Consent to let / Permission to let. This is required as you are changing your property from a residential basis to a rental basis and any new lender we approach for your new home will want to see that you have the required consent to let before lending on your new home.
This route is chosen if you do not require any additional funds to purchase your next property. In the past, most lenders have been very helpful, letting you retain your existing mortgage product / rate and only charging a small administration fee.
The majority of lenders now are far stricter on permission to let mortgages. They will grant permission for 12 months and review annually, increase the rate and may charge a substantial fee.
An example of these new criteria is with the C&G. Their current standard variable rate is 3.99% (for mortgages completed after 1/6/2010). The rate will increase to 5.99% if you request permission to let for a property with equity of 25%. Nationwide will increase your rate by 1.50%.
Another recent example is a client with a First Direct mortgage on a permission to let basis that had expired after 12 months. The lender would not renew the permission to let and was insisting that the property be sold or converted to a buy to let mortgage. As the client had only 15% equity and did not meet the buy to let rental criteria, he was forced to sell at below market value. First Direct can insist on him selling the property as he no longer meets the terms and conditions of his original mortgage offer.
We recommend you contact us before approaching your existing lender.
A more permanent solution is a Let to Buy Mortgage. This is the preferred route when you wish to raise additional funds to help purchase your new home while retaining your existing property. You are remortgaging your property to a buy to let basis. This is advised where you see this as a longer term arrangement.
The amount the new lender will advance on your retained property is not based on your income but the projected rental income and the equity in the property. The basic rule of thumb is that they require a minimum of 25% equity (some lenders will advance up to 85% loan to value) in the property and the rental income is 25% higher than the interest-only payment. The more equity in the property means less risk to the lender and a better rate.
The benefits of a let to buy mortgage are:
- It is a permanent solution
- You can raise additional money to help fund deposit on the next property
- The mortgage can be arranged on an interest-only basis to reduce monthly mortgage payments
Not all Let to Buy / Buy to Let Lenders are equal
Not all Buy to Let lenders offer Let to Buy mortgages. The major quirk in the criteria is the six-month rule.
An example of this is with the Skipton Building Society. They will let you remortgage your property to buy to let basis and raise additional funds to help purchase your new home. However, if we approach them to remortgage to a buy to let basis after you have moved out, they will require a six-month track record of the property being rented. BM Solutions and Woolwich do not impose this rule.
2) NEW LENDER / NEW PROPERTY
The majority of lenders will not include your let to buy mortgage or consent to let mortgage borrowing as a commitment as long as it is can be evidenced as a self-financing proposition. Accord, Yorkshire Building Society and Nationwide will treat your let to buy mortgage as a commitment and expect that your personal income can support your permission to let and new borrowing.
If you cannot supply proof of your consent to let or let to buy on your existing mortgage, it will reduce your choice of lenders for your new property.
Lending criteria is very fluid; please contact me for lenders’ current position.
Why use Neil Soundy Financial Services for your mortgage advice.
We will give you impartial advice.
See our client reviews regarding our advice and service
First discussion or meeting is free with no commitment
How much will it cost me for your advice?
A fee of £345. Payable at the completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender or agents for arranging the mortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the FCA
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