Let to buy - deposit for exchange

reef

Hi everyone,


We're currently in the process of trying to purchase a new build and have decided to use a let-to-buy mortgage to rent out our existing home and to provide a deposit towards our new one. We have spoken to an IFA and have our new residential mortgage in principle though we've hit a bit of a roadblock with the let to buy mortgage.


Being a new build we have to exchange within a month and completion will be many months later. My issue is when it comes to monies transferred on exchange? My understanding is that in a normal 'chain' the buyer at the bottom transfers 10% deposit on exchange and then each buyer up the chain does the same. Our issue is that we are the chain and our mortgage broker is adamant that we cannot do this on a let to buy and have to have vacated the property before any funds are released. Does this sound right? I can't find this anywhere in the T&C for the new L2B mortgage about this and it sort of defeats the point of Let to buy if that's the case?


He says the only way around this is to fund the 10% deposit ourselves but we don't have this, just enough for all fees and stamp duty which is why we're doing this in the first place. The other option is to vacate the property before exchange (something we also cannot do) so that funds can be released.


Does this all sound right? I thought it just worked in the normal way, with the property having to be vacant on completion when you move into your new house? Is it true that no funds can be released before you're out?


Thanks

heston2014

Hi
We are in the process of remortgaging to LTB, we have not been advised to vacate the property before completion and as far as I!!!8217;m aware this isn!!!8217;t going to be the case as I thought you could get an LTB whilst looking for a new property?

sal_III

So the professional you are paying is telling you something you don't like and you doubt his skills/knowledge, but would trust the opinion of strangers on the internet?

The property developer will need 10% deposit on exchange (5% in some cases) and there is no way around that.

The mortgage funds are released on completion, you want them released on exchange

kingstreet

We're doing something similar at the moment, but the LTB remortgage and the newbuild purchase will both complete together next Tuesday.

Will your lender permit the completion of the remortgage and you continuing to reside in the property rather than letting it immediately?

We have no way of answering this, so you'll need to ask your broker to check with the lender, assuming he is working from an opinion at the moment and not from having checked with the lender already.

Will the builder accept a £0 deposit on exchange based on how you are doing this?

enthusiasticsaver

You don't always have to pay the 10% on exchange if a new build.

Thrugelmir

reef wrote: »

I thought it just worked in the normal way, with the property having to be vacant on completion when you move into your new house?

You aren't selling it though. You are attempting to release equity when your plan is to rent the property out at a yet to be specified date. In one form or another this will most likely contravene the lenders contractual terms and conditions.

sal_III

enthusiasticsaver wrote: »

You don't always have to pay the 10% on exchange if a new build.

Yes sometimes it's 5% if the deposit is 5%. Granted i'm not an authority on the matter.

reef

Thanks for the replies.


The builder won't accept any less than 10% on exchange and the plots are being released slowly on a sealed bids basis. We're not allowed to make a bid to reserve unless they are happy we have all finances in order. We have our AIP for our new home and can release more than enough equity to fund this even with the new affordability criteria on monthly rent, I was just unsure how it works with a let to by mortgage as I've struggled to find much information on it.


We can afford the 10% (just) with help from family but that would require things like solicitors fees and Stamp duty (hefty with the extra 3%) to be paid when the equity is released from our existing home on completion - though I gather this isn't an issue.

sparkey1

Hi, can I just ask. Have you let property before? Are you aware of Clause 24 etc?

Who is the lender for the LTB?

reef

No, we haven't let a property before, but we are aware of the new tax and stamp duty rules. We've done all of our affordability calculations based on the rules post-April 2020. The lender is BM solutions.

sparkey1

Ok, I have concerns. I dont know where you are in the application process but I looked on the BM Solutions website, and it says.

The Buy to Let property address must not be the same as the applicant(s) correspondence address.

I read this to mean, you must move out. I have BTL myself, and all of them insist I cant live in the properties. Its a normal clause. The reason for it is because people were lying and getting BTL Loans on Interest only terms, because they could not afford a normal repayment mortgage.

I dont know what figures you are working with, but stamp duty is normally paid on completion. In other words you could use the money you have set aside for that to exchange with, top up with a bit more from somewhere (maybe the bank lending you the money to buy the new build). Argue for a 5% exchange.