Let to Buy: Rent Out Your Home & Buy a New One.

How to keep your existing property as a rental while purchasing a new home — and how the finance works.

Let to buy is a strategy that allows homeowners to retain their existing property as a rental investment while purchasing a new home. It is particularly popular with people who have built up equity in their current property, are moving for work or family reasons, and want to keep a foothold in the property market rather than selling. The finance is more complex than a straightforward purchase, but it is a well-understood product for specialist brokers.

Let to Buy Guide

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1

How let to buy works

In a let to buy transaction, you remortgage your existing home onto a buy-to-let mortgage — releasing equity if needed — and simultaneously take out a new residential mortgage on the property you are buying to live in. Both applications are typically processed at the same time.

The existing property must generate sufficient rental income to meet the buy-to-let lender’s stress test, and you must be able to afford the new residential mortgage on top of any shortfall. Lenders assess both simultaneously, which is why specialist broker input is important — not all lenders will accept let to buy as a structure, and those that do each have different criteria.

2

The equity question

Most buy-to-let mortgages require a minimum of 25% equity in the property being let. If your existing home has appreciated since you bought it, you may be able to release equity at the remortgage stage — converting some of that value into a deposit for your new purchase.

For example: a property worth £400,000 with a £200,000 mortgage has £200,000 of equity. A buy-to-let lender may advance up to 75% LTV — £300,000 — allowing you to release £100,000 after clearing the existing mortgage. That £100,000 can then fund part of your new home purchase.

3

Stamp Duty implications

This is the area that catches most let to buy buyers off-guard. Because you will own two properties at the point of completion on your new home, the 3% additional SDLT surcharge applies to your new purchase. On a £500,000 property, this means paying £27,500 rather than £12,500 in stamp duty.

You can apply for a refund of the surcharge if you sell your original property within three years of purchasing your new one — but you must have genuinely intended to sell at the time of purchase. If your intention from the outset is to retain the original property as a rental, the refund does not apply.

4

Rental income and affordability

The buy-to-let lender will assess whether the rental income from your existing property covers their stress test — typically rental income must be 125–145% of the mortgage payment at a notional rate of 5–5.5%. In markets where rental yields are modest relative to property values, this can restrict how much you can borrow.

Your new residential lender will also want to understand your full financial position, including any mortgage commitment on the let property. Where the rental income does not fully cover the buy-to-let mortgage, the shortfall will be treated as a monthly commitment in your residential affordability assessment.

5

Tax considerations for accidental landlords

Becoming a landlord — even unintentionally through let to buy — brings tax obligations. Rental income is subject to income tax, and you must declare it on a self-assessment tax return. Section 24 restricts the amount of mortgage interest you can offset against rental income for higher and additional rate taxpayers, which affects the net yield on properties with large mortgages.

When you eventually sell the property that was previously your home, Capital Gains Tax may apply to any gain accrued during the letting period. Private Residence Relief (PRR) covers the period you lived there and the final nine months of ownership, but any additional period of letting is potentially taxable. Take advice before deciding to let rather than sell.

What to remember from this guide.

You need at least 25% equity in your existing property to qualify for a buy-to-let remortgage
The 3% SDLT surcharge applies to your new purchase — factor this into your budget before committing
Rental income must typically be 125–145% of the buy-to-let mortgage payment at a stress rate
Both mortgage applications are processed simultaneously — use a broker experienced with let to buy
Rental income is taxable; Section 24 restricts mortgage interest relief for higher-rate taxpayers