Let-to-Buy
Making a splash
Brokers could be missing a trick by not talking to clients about let-to-buy. Lee Gladwell, business development director at Platform looks at this increasingly popular phenomenon
The let-to-buy market may not be new, but in the current economic climate it has certainly gained a fresh appeal. For borrowers it offers a clever solution to many a moving problem and for brokers, it’s a potential new income stream that helps better serve their clients. Let-to-buy is a straightforward concept: an existing property (usually the client’s residential home) is let to tenants and a new home bought. In practice the mortgage on the client’s current home is often converted to a buy-to-let deal, enabling them to take out a new residential mortgage on their new property.
A growing trend Letting-to-buy is proving a savvy option in the current economic climate and could be suitable for a wide range of clients.
CAn’t seLL, won’t seLL Many borrowers want to move house but are unable to achieve a sale on their existing property at the price they want. At the same time they may want to take advantage of lower prices to upgrade to a larger property. According to Nationwide, average house prices in August were 0.4% lower than a year ago. These clients simply want a solution that enables them to buy their new place without being hindered by an existing residential mortgage.
AdvAntAge LAndLord The booming rental market means that many homeowners want to take advantage of high tenant demand. With tight lending criteria forcing many potential
first-time buyers to rent for longer, average rents have been pushed up to over £700 a month (LSL Property Service, August buy-to-let index). So it can make sense for some borrowers to rent out their current property at a premium, and buy a new home to live in themselves. They can then wait for the purchase market to return before they sell the first property.
ForAy into Buy-to-Let Some clients actually intend to use their let-to buy as a first foray into buy-to- let, allowing them to begin building a property portfolio. They may see it as a way of minimising the risks of becoming a landlord, since they already have a thorough knowledge of the property, as well as the local area.
new joB, new home With unemployment running at almost 2.5m and jobs hard to come by, many people are being forced to relocate for work. Let-to-buy can be ideal for those clients who either plan to return to their existing home in the future or want to keep hold of the property to take advantage of any increase in capital. This should not be confused with ‘consent to let’ which is adequate for those who will be only be away from their property on a short-term basis and want to let it out.
Broker Boost The advantages of let-to-buy are very clear for clients and there are definite benefits for brokers too. Let-to-buy fills a genuine niche in the market, particularly in the
current climate, where simply selling an existing home to buy a new one is not a one-size-fits-all answer for a broker’s client base.
As a broker it makes professional and business sense to have an understanding of a wide range of innovative funding options that can help clients - and let-to- buy is one of these options. The customer gets a solution to
their problem, and is therefore more likely to stay loyal in the future and the broker gets a revenue stream where they may previously have been unable to help. Plus, because a client is also buying a new property there is double the potential mortgage and insurance commission.
Brokers know Best Let-to-buy is a perfect example of a product that professional brokers are best placed to arrange. There are two mortgages involved so it can be more complex than a standard home loan, meaning that adviser expertise is invaluable in helping the client find the right balance of loan to values and loan sizes. With an increasing number of let-to- buy options available across the market it makes sense to ensure brokers are up-to-date with what is on offer. As well as being able to offer expert advice, it means brokers can find flexible funding solutions that they may not have previously considered.
Let-to-buy is just one such innovative option that could help your client, and the mortgage market, get moving. n
Mortgage introducer OCTOBER 2011 47
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