Let-to-Buy UK: Rent Out Home to Buy Another

What is let-to-buy?

Let-to-buy is a strategy where you convert your existing residential mortgage to a buy-to-let mortgage (or obtain consent to let) so you can rent out your current home, while simultaneously taking out a new residential mortgage to purchase another property. It is the reverse of buy-to-let — instead of buying a new property to rent out, you keep your current home as the rental and buy a new one to live in.

This approach is popular with homeowners who want to move but prefer not to sell their existing property, either because of negative equity, a desire to build a rental portfolio, or a belief that the property will appreciate in value over time. However, it involves managing two mortgages simultaneously and requires careful financial planning.

How let-to-buy works in practice

The process typically follows these steps. First, you approach your current mortgage lender to either switch to a buy-to-let product or obtain consent to let. Then you apply for a new residential mortgage on the property you want to buy. Both transactions usually need to complete around the same time.

Lenders will assess your ability to afford both mortgages. For the buy-to-let element, they will run a rental coverage test — the expected rent must typically cover 125–145% of the mortgage payment at a stress-tested interest rate (usually around 5.5%). For the residential mortgage, they apply standard affordability criteria based on your income and outgoings.

You will need a deposit for the new property (usually at least 10–15% for residential) and you may need to release equity from your existing property or demonstrate sufficient savings. Some lenders use the projected rental income to boost your overall affordability calculation.

Consent to let vs remortgaging to buy-to-let

There are two main routes to renting out your existing home:

• Consent to let: Your current lender agrees to let you rent out the property while keeping your existing residential mortgage. This is usually granted for a limited period (12–24 months) and may come with a small interest rate increase of 0.5–1%. It is the simpler option but is normally temporary
• Remortgaging to a buy-to-let product: You formally switch to a buy-to-let mortgage, which is designed for rental properties. Interest rates are typically 0.5–1.5% higher than residential rates, and most lenders require at least 25% equity in the property. You will also need to pay any arrangement fees and potentially early repayment charges on your existing deal

If you have a favourable fixed rate on your current mortgage, consent to let may be the better short-term option. If your current deal is ending or you plan to let the property long-term, switching to a proper buy-to-let mortgage provides more certainty.

Financial considerations and costs

Let-to-buy involves significant costs that you should budget for carefully:

• Stamp duty: Because you will own two properties at the point of buying the new one, you will pay the 3% additional rate surcharge on the entire purchase price of your new home. On a £300,000 property, this adds £9,000 to the standard stamp duty bill
• Two sets of mortgage fees: Arrangement fees, valuation fees, and legal costs apply to both the buy-to-let product switch and the new residential mortgage
• Landlord costs: Buildings and landlord insurance, gas safety certificates, electrical inspections, potential letting agent fees (typically 8–15% of rent), and ongoing maintenance
• Tax on rental income: Rental profits are taxable at your marginal income tax rate. Since April 2020, mortgage interest relief has been replaced by a basic-rate tax credit of 20%, which particularly affects higher-rate taxpayers

Tax implications of let-to-buy

The tax landscape for let-to-buy has become more complex in recent years. Rental income is added to your other income for tax purposes, and you can only offset a basic-rate tax credit for mortgage interest rather than deducting the full interest cost. This means higher-rate and additional-rate taxpayers pay more effective tax on rental profits than they did before the 2020 changes.

When you eventually sell the rental property, you will owe capital gains tax on any increase in value since it ceased being your main residence. However, because it was once your home, you receive principal private residence relief for the period you lived there plus an additional nine months. The current CGT rates on residential property are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.

Is let-to-buy right for you?

Let-to-buy works well if your current property is in a strong rental area with reliable demand, you have sufficient equity (at least 25%) to qualify for a buy-to-let mortgage, your income comfortably supports the new residential mortgage even without the rental income, and you are prepared for the responsibilities of being a landlord.

It may not be suitable if you are already stretched financially, if the rental yield on your current property is low, or if you are unwilling to deal with tenant issues, maintenance obligations, and the administrative burden of being a landlord.

Get expert help with let-to-buy

Let-to-buy involves coordinating two mortgage applications simultaneously, navigating stamp duty implications, and understanding the tax treatment of rental income. A specialist mortgage broker can assess whether this strategy makes financial sense for your situation and find lenders who are experienced with let-to-buy arrangements.

Nesto matches you with experienced mortgage brokers who can guide you through every step of the let-to-buy process. Get free, no-obligation advice from an FCA-regulated professional.