Introduction.
Let-to-buy means keeping your current home and letting it out, while buying a new home to live in.
It is a popular way to start a property portfolio, or to avoid selling in a slow market. It also means arranging two mortgages at once, becoming a landlord and paying more stamp duty.
Done well, it gives you a rental income and a long-term asset. Done in a hurry, it can stretch your affordability and leave you with tax bills you did not expect.
This guide explains the two ways to finance the home you keep, how lenders test the rent, how they view your new mortgage, and the tax and legal points to plan for.
The stamp duty surcharge in England on additional homes, payable when you buy without selling.
01Two mortgages, one plan.
A let-to-buy has two parts, and both need to work: the home you keep and the home you buy.
| Property | Usual finance |
|---|---|
| The home you are keeping | Buy-to-let remortgage, or consent to let |
| The home you are buying | A residential mortgage |
Why the order matters
Lenders on the new home want to see the existing mortgage dealt with, and often want the let-to-buy finance arranged at the same time or first. We run both applications together so the timings line up.
Adviser’s note
Raising money from your current home to fund the deposit on the new one is common. The buy-to-let lender will want to know that is the purpose.
Unlock the full guide
The rest of the guide is free. Enter your details to read every chapter online and download the designed PDF to keep.
- 02Consent to let or remortgage
- 03The rental stress test
- 04Your new home’s mortgage
- 05Stamp duty and tax
- 06Becoming a landlord
- 07A let-to-buy, illustrated
- 08Checklist and glossary
02Consent to let or remortgage.
If you only plan to let for a while, your current lender may give consent to let. For the longer term, a buy-to-let remortgage is usually better.
| Consent to let | Buy-to-let remortgage | |
|---|---|---|
| What it is | Permission from your current lender | A new buy-to-let mortgage |
| Typical length | Often 12 months, sometimes renewable | Long term |
| Cost | A fee and often a higher rate | New deal, legal and valuation costs |
| Raising money | Not usually | Possible, subject to rent |
| Early repayment charge | Avoided | May apply on your current deal |
Never let without permission
Letting your home without your lender’s consent can breach your mortgage terms and invalidate your insurance.
03The rental stress test.
Buy-to-let lenders lend based mainly on the rent, tested against a stressed interest rate.
| Test | Typical requirement |
|---|---|
| Basic-rate taxpayers | Rent at least 125% of interest at the stress rate |
| Higher-rate taxpayers | Rent at least 145% of interest at the stress rate |
| Five-year fixes | Often tested at a lower rate |
| Top slicing | Some lenders use your income to make up a shortfall |
Indicative only. Criteria vary by lender.
An example
A flat letting for £2,500 a month, tested at 145% and a 5.5% stress rate, supports a loan of around £376,000 on an interest-only basis.
Rental valuation
The lender’s surveyor sets the rent figure used, not the letting agent. A letting agent’s estimate helps us plan.
04Your new home’s mortgage.
The lender on your new home will look at your income and how your existing property affects it.
- The let property. Most lenders ignore it if the rent comfortably covers the buy-to-let mortgage.
- Shortfalls. If the rent does not cover it, the gap reduces what you can borrow.
- Deposit. Often raised from equity in the home you keep.
- Timing. Lenders usually want the buy-to-let arranged before or alongside the new purchase.
Affordability buffer
Allow for empty periods, repairs and rate rises on the let property. Lenders may not insist on it, but your budget should.
05Stamp duty and tax.
Keeping your old home changes the tax position on both properties. Take tax advice before you commit.
- Stamp duty surcharge. In England, buying your new home while keeping the old one usually triggers the 5% higher rates.
- Refunds. If you sell your old main home within three years, you can usually reclaim the surcharge.
- Income tax on rent. Rental profit is taxed as income. Mortgage interest gets a 20% tax credit rather than full relief.
- Capital gains tax. When you eventually sell the let property, part of the gain may be taxable.
Take tax advice
We are mortgage advisers, not tax advisers. An accountant can explain your position, including whether owning through a limited company could make sense.
See our Limited Company Guide if you are considering a company structure.
06Becoming a landlord.
Letting a property brings legal duties. Most are straightforward, but they need to be in place before a tenant moves in.
- Gas safety certificate, renewed every year
- Electrical safety report, every five years
- Energy performance certificate
- Deposit protection in a government-approved scheme
- Right to rent checks
- Landlord insurance
- Any licence required by your local council
Renters’ Rights Act
The Renters’ Rights Act is reforming private renting in England, including ending “no-fault” section 21 evictions and moving tenancies onto a periodic basis. A good letting agent will keep you compliant.
Many London boroughs run selective or additional licensing schemes, so check with your council.
07A let-to-buy, illustrated.
A couple moving from a flat to a family house
They own a £550,000 flat with a £250,000 mortgage and want a £950,000 house without selling.
- Flat
- Buy-to-let remortgage to £380,000, rent of £2,600 a month
- Released
- £130,000 towards the new deposit, plus savings
- New home
- £950,000 house with a £190,000 deposit and £760,000 mortgage
- Stamp duty
- Paid at the higher rates, with tax advice taken first
- Outcome
- Both mortgages completed together, with a letting agent managing the flat
This example is illustrative and does not describe a real client.
08Checklist and glossary.
Documents to have ready
- Your current mortgage statement and any early repayment charges
- A letting agent’s rental estimate
- Proof of income and three months’ bank statements
- Details of the home you are buying
- Evidence of your deposit
- Safety certificates for the let property
- Landlord insurance quote
- Advice from an accountant on tax
Glossary
- Let-to-buy
- Letting your current home while buying a new one.
- Consent to let
- Your lender’s permission to let your home.
- Rental cover
- Rent as a percentage of the mortgage interest.
- Stress rate
- The rate lenders use to test the rent.
- Top slicing
- Using personal income to support a rental shortfall.
- Higher rates
- The stamp duty surcharge on additional homes.
- Section 24
- Rules limiting tax relief on mortgage interest.
- ERC
- Early repayment charge for leaving a deal early.
Related: Buy-to-let advice · Buy-to-Let Guide · All guides