The emerging housing trend of the let-to-let market sees property owners becoming both landlord and tenant as a way to increase living space quickly and within budget.
The pandemic has made consumers realise what they want to change about their lives, and for many, it’s their home. A growing number of property owners this year, cooped up to live and work within the confines of four walls for months on end, have sought more space and larger homes with gardens in which to enjoy spending time outside.
But for many people, trading up to a second or larger property is no easy matter. For one thing, cost is a deterrent. Home movers are having to pay around £68,000 to move from a two-bed flat to a three-bed house, £4,000 more than this time last year, according to property portal Rightmove.
As the cost of trading up increases and mortgage lending remains highly competitive, let-to-let could provide the answer for home owners who wish to move to a larger property, either in the event of further lockdowns or as a quick and easy long-term solution to a lack of living space.
How the let-to-let process works
The home owner lets out their existing, often smaller, home and uses the rent received to cover the mortgage and rent a larger property. Due to the boom in housing demand and rising property prices, many wishing to trade up are unable to purchase the home they desire. So the let-to-let process enables them to solve the problem without being priced out of the market.
Example A. An owner, realising his two-bedroom flat wasn’t going to sell in the spring, decided to let his flat and instead rent a three-bedroom house with a garden to give him the space he needed during the summer lockdown. So he became both landlord and tenant.
He now lives in the larger property he desired but his total outgoings have barely increased due to lower mortgage interest rates.
Example B. The owner has reduced his original mortgage payments of £1,200 to £935 per month, thanks to remortgaging. He finds a rental property costing £1,400 per month and lets out his old flat for £1,000, minus management fees. He now covers the mortgage and spends only several hundred pounds more per month for a much larger property.
At the same time, he remains invested in the property market.
Although the let-to-let market is not new, having become popular in the wake of the financial crisis in 2008, it is set to grow in demand, especially among those who find it difficult to sell their house or secure mortgage funding in order to trade up.
The advantages of renting while owning
One of the most attractive benefits of this rental process is that it can be accomplished quickly. There is no need to wait three or four months to move house, unlike exchanging on a sale. This is why the process is proving popular with home owners in new relationships who move in together and with those who need a larger home to accommodate a new family.
This method also suits owners who find it difficult to sell their homes for whatever reason and consumers who are considering moving to a new area for jobs or schools. It gives renters time to familiarise themselves with a new neighbourhood before committing to a purchase, and allows time to save for a larger property while keeping ownership of the first property.
Some buyers may regard renting a home while already owning one as illogical, but this hitherto little-known option confers considerable advantages. Let-to-let is an easy way to increase living space quickly, without compromising on living standards or locations where the private rental sector (PRS) is in high demand.
