How Let-to-Buy Works
Step one: remortgage your existing residential property onto a buy-to-let mortgage, releasing equity to use as a deposit. The consent-to-let process (which some lenders allow as a short-term bridge) is not the same as a full BTL remortgage - lenders require the property to be formally remortgaged onto a BTL product if you intend to let it long-term. Step two: use the released equity as a deposit for the purchase of the new residential property. Step three: purchase the new property on a residential mortgage.
The Simultaneous Remortgage and Purchase
The practical challenge of let-to-buy is timing: ideally the BTL remortgage and the new residential purchase complete simultaneously, so the equity release from the first property funds the deposit on the second. This requires coordination between two mortgage applications, two sets of solicitors, and two completions - and a broker who understands the sequencing is essential to managing this process effectively.
Stamp Duty Implications
The additional dwelling supplement of 3% SDLT (in England) applies to the new residential purchase, because at the point of purchase the buyer owns (or has just remortgaged) an additional residential property. The first property has not been sold, so the purchaser owns two residential properties simultaneously - triggering the higher rate. This must be factored into the deposit and equity calculation. If the first property is subsequently sold within three years, the additional stamp duty can be reclaimed.
BTL Rental Income Assessment
The BTL remortgage on the existing property must pass the rental income stress test: the projected monthly rental income must cover a minimum of 125% (basic rate) or 145% (higher rate / Ltd Co) of the mortgage interest at the stress rate. Lenders will require a rental income projection from a qualified letting agent. If the rental income does not cover the ICR threshold, the BTL remortgage is not possible at the required LTV.
| Borrower type | Minimum ICR coverage |
|---|---|
| Basic rate taxpayer | 125% of mortgage interest at the stress rate |
| Higher rate / Ltd Co | 145% of mortgage interest at the stress rate |
When Let-to-Buy Makes Sense
Let-to-buy is most suitable when: the existing property is in a strong rental market with good yield prospects; the property has significant equity that can be released to fund a meaningful deposit on the new home; the homeowner is committed to becoming a landlord rather than simply deferring a sale; and the combined mortgage commitments are affordable from income and rental income combined.
- The existing property is in a strong rental market with good yield prospects.
- The property has significant equity that can be released to fund a meaningful deposit on the new home.
- The homeowner is committed to becoming a landlord rather than simply deferring a sale.
- The combined mortgage commitments are affordable from income and rental income combined.