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Let to buy advice
Letting out your property in order to buy another one makes good sense in many ways. You retain a stake in both properties, meaning your options are open and you could, if dissatisfied with your move, return to your original home. Renting out your home can be a useful source of additional income, and in time you can use it the first step to building a portfolio of rental properties, with obvious financial advantages. However, there are potential pitfalls in let to buy that must be avoided. The following notes may provide food for thought.
1. Consider whether your home is really suitable for letting. Is it near major transport links? Have other properties nearby been successfully let, and, if not, why not? Are rents in the area likely to be high enough to cover your mortgage costs? Is there a high rental demand?
2. Once you definitely decide to go ahead with let to buy, you need to make sure your mortgage costs on both properties are kept to a minimum. Take advantage of any special deals that may be available, such as cash back offers and discounted interest rates.
3. Once any initial "tie in" period on your existing mortgage has ended, try to keep mortgage costs low by shopping around for better deals whenever possible. Most lenders will contact you at the end of a special deal period.
4. It's sometimes sensible to borrow a little more than you need to in order to provide yourself with a buffer - perhaps three months' rent - against void periods (when your rental property could be vacant). You should maintain this buffer as far as possible, topping it up from other income - it may be useful for repairs too.
5. If you are letting furnished, make sure that your home is well furnished (strong furniture) and decorated and in sound structural order before you attempt to let it out. When faced with a choice of properties, renters will usually opt for the one that presents the best appearance.
6. Unless you have time, and are on hand, to manage the letting of your property yourself, make sure you engage a reputable and efficient letting agency to look after it for you. You should find out whether the agency carries out periodic checks on the property to ensure renters are not causing excessive damage that could be expensive to repair. Typically you can expect to pay between 10 and 15 per cent of the income from letting to an agency.
7. If you have surplus income, you could use it to overpay your mortgage if possible - this will cut short the term of the mortgage and could reduce your outgoings when times are tougher.
8. Before undertaking a let to buy transaction you must be sure that your mortgage lenders have been informed about, and have agreed to, what you are doing.
9. You will almost certainly need to pay higher insurance premiums on your home after it is let - so you must inform your insurer as well or your existing policy will most likely be void.
10. If your home is subject to leasehold, you should make sure that there are no restrictions in the lease on letting it out.
