Breaking the chain: How to move house without selling up


Managing a property chain can be a nightmare if someone backs out. “Let-to-buy” is one way of keeping hold of your home after you’ve moved on.

While buy-to-let involves the purchase of a property with the intention of generating an income through renting it out, let-to-buy involves existing homeowners letting out their current home and using the rent to cover the costs, while buying a new residential property.

This strategy often involves releasing equity from the original home (remortgaging) to raise cash towards the deposit on the new property. Usually, the existing homeowner’s mortgage would be transferred to the new house, while a buy-to-let mortgage would be taken out for the existing home, which many lenders look on more favourably than a straight buy-to-let mortgage.

Accidental landlord

A number of homeowners have become ‘accidental landlords‘ in this way, which is more common in times of housing uncertainty. An estimated one in three chain-based transactions (where house purchases are linked and dependent on the preceding and succeeding homes being bought and sold) now falls through in the UK, and let-to-buy offers an alternative solution to relisting the property for sale and starting again.

It is also a popular way of starting to build a property portfolio, and it makes sense if your existing mortgage is already quite small – rather than sell your property, you can keep it and use a bulk of the rent to cover a mortgage on a new home.

It saves the transaction costs involved in selling the home, too, and has the added benefit that the owner already knows the local market as well as the ins and outs of the property – information which can be passed onto the tenant in a much more personal way than a regular buy-to-let landlord.

Taxing times

The major downside to this is the added stamp duty which is applied to second home purchases, brought in by George Osborne from April 2016. It means that, for any second home worth more than £40,000, an additional 3% stamp duty must be paid on top of the basic stamp duty rate, which is calculated on the property’s value.

Income tax and capital gains tax should also be researched by anyone hoping to rent their property out, as they could both potentially dent the total gains that are made.

Another thing to consider is whether the property is suitable for rent. If it is far from public transport, or isn’t modern enough, for example, it may not be popular with today’s Generation Rent, who typically expect a higher quality of housing than in the past.

Affordability is also key, as let-to-buy isn’t necessarily a cheap option at the outset.

David Hollingworth, of  London & Country Mortgages, said: “Most lenders will only agree to the deal if you have an earned income of at least £25,000 and the rent you are expected to collect on the home is at least 25 per cent more than the monthly mortgage payment at a notional rate of 5 or even 6 per cent.”

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Breaking the chain: How to move house without selling up


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