What is Let-to-Buy?

Full Definition

Let-to-buy is the reverse of buy-to-let: rather than buying a new property specifically to rent out, a homeowner keeps and lets out a property they already live in, typically by remortgaging it from a residential mortgage onto a buy-to-let mortgage, and uses the funds released (plus the future rental income) to help buy a new home to live in themselves. It is commonly used by people who want to move but do not want to sell their current property, for example because it has strong rental demand or capital growth potential, because they might want to move back into it later, or simply because selling and buying simultaneously in a chain is impractical. Lenders assess a let-to-buy remortgage broadly like any other buy-to-let mortgage, focusing on the property's expected rental income (usually needing to cover at least 125-145% of the mortgage interest payment, depending on the lender and the borrower's tax position) rather than solely on the owner's personal income, though some lenders will also want to see the affordability of the new residential mortgage being taken out alongside it. Rental income from the let property is taxable, tax relief on the buy-to-let mortgage interest is restricted to a 20% tax credit under Section 24 rather than being fully deductible, and selling the let property later may trigger Capital Gains Tax, since it will no longer qualify fully for Private Residence Relief for the period it was rented out.

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