"Most clients will need to capital raise on their current property to fund the deposit for the ongoing purchase. Not all buy-to-let lenders will help with this, but many do and allow let-to-buy as part of their proposition."
Many will of course need to pay the SDLT surcharge on additional properties, but this can still represent a saving and consequently, let-to-buy is particularly popular right now.
Let-to-buy has always been attractive business for brokers and most will be very keen to take advantage of the current demand. So, what are the affordability considerations?
There are two parts to a let-to-buy transaction:
1) Buy-to-let remortgage
Most clients will need to capital raise on their current property to fund the deposit for the ongoing purchase. Not all buy-to-let lenders will help with this, but many do and allow let-to-buy as part of their proposition.
The loan amounts available from the anticipated rental income are wide and various, and it pays not just to fall back on your favourite lender. Different ways of approaching the situation could also deliver very different results. For example, what impact would it have on the maximum available loan if you were to choose a five-year fixed rate? What impact will tax rates and LTV have? Would a smaller, more specialist, lender offer a better solution? It’s easy enough to check a couple of lenders’ calculators, but what if you’ve missed one?
One way to check, of course, is to use a platform like MBT BTL Affordability to research the options for remortgage capital raising. At MBT Affordability our buy-to-let calculator will provide a comprehensive view from 65 lenders and it’s easy to choose various scenarios, such as the impact of choosing a five-year fixed rate or considering top-slicing.
Data from the platform shows that, in August, the average buy-to-let loan requested was £225,000. The average maximum loan offered was £346,082 and the average minimum loan offered was £191,325 – that’s a spread of more than £150,000!
2) Ongoing purchase
Once you have secured a buy-to-let remortgage, the next stage of a let-to-buy case is finding the best lender to support the ongoing purchase. The range of affordability here is usually even more significant as some lenders don’t allow the scenario, others ‘aggregate’ the loan, some will ignore the background buy-to-let if it ‘washes its face’, while others take the monthly payment as a commitment. It can be a very complex affordability landscape to navigate without the right tech.
For example, Nationwide, when the existing property is ‘to be let’ rather than ‘already let’, will aggregate the loan, unless the buy-to-let remortgage is with TMW. So, don’t discount them for this type of deal. In fact, research by MBT Affordability has shown TMW to be amongst the best lenders for the buy-to-let part of the transaction.
The other issue currently of course is the lack of high LTV products, and so you may need to increase the remortgage to provide enough deposit to obtain a decent product or any product at all. Again, it is useful to have access to a research platform that enables you to play around with a combination of the two loans.
There are a lot of variables to consider for clients looking at let-to-buy, but these transactions are generally quite lucrative for brokers. So, it is even more important to get the research right, and make use of the right tech to make your job easier and your advice more comprehensive.
