Can I Rent My Home so I Can Afford to Buy Another Property?

Yes, it is possible to rent out your current home to generate rental income, which can then be used to help afford the purchase of another property.  

There’s a term given to the process of releasing equity from your home to buy a new one and moving it onto a buy-to-let basis at the same time – let to buy. 

As let to buy is a scenario rather than an actual mortgage product, there are few “let to buy mortgages” on the market. 

Typically, when you let your property to buy another, you take out 2 mortgages: a buy-to-let remortgage on your existing property and a residential mortgage on your new home. 

You use the funds raised via the buy-to-let remortgage as a deposit for your new residence in addition to any cash savings you may have. You can typically release up to a maximum LTV (loan-to-value) of 75% of your existing property using a buy to let mortgage, subject to a valuation and rental assessment. 

One of the real benefits of let to buy is that you don’t need one lender to do both mortgages. You can choose from the whole of the market for each mortgage and use 2 different lenders, meaning you’ll have access to more and better products. 

An alternative to remortgaging your current property onto buy-to-let is to approach your current residential lender and ask for “consent to let”. This is where your lender gives you permission to rent out your property to a tenant, without the need to remortgage it onto a buy-to-let basis. However, lenders will sometimes only consider consent to let if you intend on moving back into this property in the foreseeable future. People will often apply for consent to let if they’re currently in the middle of a fixed rate that has early repayment charges. 

Nonetheless, it’s still often worth asking your lender what their stance is because your current interest rate will likely be cheaper than you’ll get on a buy-to-let mortgage.  

How Much Can I Borrow on a Let to Buy Mortgage? 

As you take out 2 types of mortgages when you let to buy – a buy-to-let mortgage on the property you want to let out and a residential mortgage on the property you wish to purchase and move into – you have 2 applications that are assessed differently. This means the lenders don’t rely on the same factors when determining how much you can borrow. 

For the Buy-to-Let Mortgage 

Most lenders cap the buy-to-let mortgage on your current property at 75% of its value, although there are a few who do go higher. The loan can also sometimes be restricted by the anticipated rental income, with lenders typically looking for the rent to be a minimum of 145% of the monthly payment at a “stress test” rate of around 5%. This, rather than your earned income, will decide how much you can borrow. 

Use our buy-to-let rent calculator to find out how much you need in rental income to qualify for a mortgage. 

The buy-to-let lenders will still want to check your income to make sure you can afford to cover any periods when there is no rental income and any maintenance or repairs the property may need in the future. 

It's important to remember that you also need to factor in any potential lettings agent fees and that the rental income is still a form of income and therefore you may be taxed on it. 

For the Residential Mortgage 

The residential mortgage on the new property will be assessed against your earned income as usual. However, the lender will still look at the impact of a buy-to-let mortgage in the background when determining how much you can borrow. Lenders have slightly different ways of doing this. They’ll want to know how much you’re borrowing on the buy-to-let mortgage and what your rental income will be to ensure you can afford both mortgages. 

It’s also worth noting that, as you are looking to buy your second residential property, you’ll have to pay the Additional Stamp Duty surcharge of 3%. 

Can I Release Equity from My Home to Buy Another? 

Let to buy is a way of releasing equity in the property you already own to buy a new house. The more equity you release, the bigger a deposit you can put down on a property. 

Renting Your Home to Afford Another Summary 

Here are some key considerations if you're thinking about renting out your home: 

1. Check mortgage and local regulations: 
   • Review your existing mortgage agreement to ensure that renting out the property doesn't violate any terms. Some mortgages have restrictions on renting 
   • Check local regulations and laws to ensure compliance with any requirements related to renting out residential properties 
2. Inform your lender: 
   • If you plan to rent out your home, it's advisable to inform your mortgage lender. They may provide guidance on any necessary steps or adjustments to your mortgage agreement  
3. Calculate rental income: 
   • Determine how much rental income you can reasonably expect to generate. This calculation should consider factors such as local rental market conditions, property size, amenities, and location 
4. Property management: 
   • Decide whether you will manage the property yourself or instruct a property management company to manage on your behalf. Property management companies can handle tasks such as tenant screening, rent collection, and property maintenance 
5. Tax implications: 
   • Understand the tax implications of rental income. Rental income is generally taxable, but there may be deductions available for expenses related to property management and maintenance 
6. Affordability for a new property: 
   • Consider how the rental income from your current home contributes to your ability to afford a new property. Lenders may take rental income into account when evaluating your financial situation for a new mortgage 
7. Financial cushion: 
   • Have a financial cushion for unexpected expenses related to the rental property, such as maintenance or repairs. Being a landlord comes with responsibilities, and having reserves can help you handle unforeseen circumstances 
8. Tenant screening: 
   • Screen potential tenants thoroughly to minimise the risk of issues such as non-payment of rent or property damage 
9. Long-term vs. short-term rentals: 
   • Decide whether you want to pursue long-term rentals or short-term rentals (such as through platforms like Airbnb). Different rental strategies have varying requirements and considerations 

It's crucial to approach renting out your property with careful planning and consideration of your financial goals. Consulting with an estate agent, and mortgage broker can provide valuable insights tailored to your specific situation. Call us on 0330 433 2927 for more information.