Let-to-buy demand takes off

Let-to-buy mortgages offer homeowners the chance to buy a second residential home funded by borrowing money from their existing home and letting it out to tenants.

London-based Prolific Mortgage Finance has handled more let-to-buy applications in the last two months than the previous six, its managing director Lea Karasavvas said.

Karasavvas said: “It seems people don’t want to let go of properties at the moment – they are trying to build buy-to-let portfolios.

“People are a lot more confident in property values and let-to-buy is going from strength to strength as a direct result.”

He added that the downside of let-to-buy popularity is homebuyers may have less stock to choose from, leading to higher purchase prices.

With let-to-buy the rental income has to cover the existing mortgage by 125%, while the mortgage is typically limited to 75% loan to value.

John Charol’s senior technical manager Ray Boulger said people commonly opt for let-to-buy as a cheap and easy way to become a landlord without paying house purchase fees again like Stamp Duty.

He added: “In our experience people have been choosing let-to-buy as they see buy-to-let as a good way to fund their pension.

“Let-to-buy makes the whole process less stressful as the purchase is not conditional on your sale.”

Boulger said Charcol’s let-to-buy business had been steady for the past six months, as the sales market has remained moderately strong.

For let-to-buy to take off, he added, the rental market would have to be stronger than the sales market.

The European Mortgage Credit Directive will result in let-to-buy being classed as regulated consumer buy-to-let by March 2016.

Boulger said this will likely reduce the number of available products for potential let-to-buy landlords, resulting in less choice. He added: “They will end up paying more.”

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