Non Standard Mortgages - Let To Buy
Let To Buy Mortgages
A let to buy mortgage is a new slant on buy to let that
allows homeowners to let their existing home and buy another
elsewhere.
Prior to the surge in popularity of buy to let, most lenders
viewed taking on a second mortgage as a purely commercial
operation and heavily loaded the interest rate as a result.
But now, an increasingly demanding and sophisticated borrowing
public have forced lenders to be more flexible in their
approach and more competitive in their product offerings.
As a result, let to buy mortgages are fairly common (though
there still aren't a huge number of lenders offering let
to buy schemes) and increasingly competitive.
Here are the main features of a let to buy mortgage:
A let to buy mortgage works by allowing you to borrow
money to buy a new home to move into, while you existing
residence is let out to tenants.
The lender will more than likely gain independent verification
of the fact that the achievable rental income is well above
the mortgage repayment on your existing property, much as
they would do with any other buy to let mortgage. This helps
ensure that there is enough money in the kitty for you to
be able to cope financially if your tenants default. Most
lenders will look for rental income of around 130-150 percent
of the mortgage repayments on your existing property.
On top of this, the lender will look at your disposable
income to assess how much they will lend you on your new
residence.
As long as the likely rental income on your existing property
will pay your old mortgage with enough to spare, some enders
will offer you a mortgage for the new property based on
the their normal income multiples.
Others base the amount that they will lend on your salary
and the existing loan commitments that you have, but then
apply the 'deduction rule'. This means that they will lend
up to 3.5 times your income (or whatever salary multiple
applies), minus a representative figure for annual mortgage
payments worked out at a pre-set level of interest. Confused?
Say you earn £40,000 and have an outstanding mortgage balance
on your property of £120,000. Under the rule, the annual
mortgage repayments may be calculated as £10,000. This would
be deducted from your salary to leave £30,000, which is
then multiplied by 3.5 to give £105,000 - the amount that
you are able to borrow.
Most lenders will also set a fairly rigid and fairly demanding
loan-to-value requirement on the amount to be borrowed,
depending on the size of the sum you are asking for. Don't
be surprised if you are required to stump up a 15 or 20
percent deposit, though you may be able to get away with
10 percent or even less on a smaller loan.
