Let to Buy chain breaker
We have recently advised on a deal that has allowed a client to retain their current home and take money out of that house, to allow them to purchase a new main residence. In the 2010 – 2012 recession we saw many of these transactions, as people struggled to sell their homes, and now as the market is showing signs of another dip, this solution is more common once again.
So how does this work? In this instance my client’s current was valued at £500,000 and he had a mortgage of £268,000 remaining. We were able to arrange a mortgage of £375,000 (75% LTV) on this property, thereby releasing £107,000. The rent was assessed at £1,750 per month, which was well below the level required. However the lender we approached allowed an element of “top slicing”, whereby we could use the client’s earned income to top up the rent.
This is called a Let to Buy, as the client is letting their current home to purchase a new main residence. This is different to a Buy to Let, where the client is buying a new property with the sole intention of letting it out. Because they are not selling their current home, they would have to pay the stamp surcharge of 3% on their new purchase; but if they sell the let house within three years then they can reclaim this.
The onward purchase price was £700,000, and we arranged a mortgage of £530,000 with a lender who was happy with the Let to Buy in the background. That lender understood that the current house was to be let out, but there was no track history of rental income. They were satisfied with a letter from a local letting agent confirming the level of rent that could be expected.
This allowed the clients to be in control of their chain from day one, which subsequently allowed them to negotiate a better deal on their new home. We arranged a two year fixed on their Let to Buy, so if they decide to sell the let property they can reclaim the extra stamp duty that they have paid; and if they want it keep it then they have increased their wealth and aided their pension planning.