Movers are cashing in on a buy-to-let boom by hanging on to their existing home and then renting it out.
The number of borrowers buying a new property and letting their old one soared by 40 per cent in 2012, according to broker John Charcol.
And the surge is continuing this year.
The average rental yield, which shows rental profit as a proportion of the value of a property, is now 5.3 per cent — compared with 4.7 per cent three years ago, according to LSL Property Services.
And buy-to-let mortgage rates have plunged. The average fixed deal has fallen from 5.09 per cent in August to 4.44 per cent today.
The average variable rate is down from 4.58 per cent to 4.22 per cent.
Plus, there are now 488 buy-to-let loans up for grabs compared with just 283 in April 2010.
As a result, many people looking to move home are seizing the opportunity to become a landlord.
The first hurdle in this process is working out what you can afford. It can be tricky calculating how to split your borrowing between the two properties.
First, look carefully at how much equity you have in your existing home.
You’ll probably need to take out a buy-to-let mortgage on your old property and a residential mortgage on the new house you intend to live in. To get a buy-to-let deal you’ll typically need at least a 25 per cent deposit — though they are available with as little as 10 per cent. So you’ll need to leave enough cash in your old home to cover this.
Say you have 50 per cent equity in a property worth £150,000, so £75,000. You need to leave £37,500 in this house as a deposit for a buy-to-let loan. You’ve then got £37,500 to put towards a deposit for your new place.
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You may want to take your existing mortgage with you to your new property — particularly if you are locked into a fixed-rate that charges hefty early-exit fees if you leave it before the term is up.
Once you have an idea of your deposit size and how much you can realistically afford to borrow, you can then compare deals.
Nottingham Building Society offers a 3.49 per cent, two-year buy-to-let deal for those with a 25 per cent deposit.
On a typical £150,000 interest-only loan, payments work out at £436 and the total cost over the two years, including a £1,999 fee, is £12,463.
You will also get a free valuation and legal work if you are remortgaging.
Those with a 30 per cent deposit can get a competitive five-year 4.29 per cent rate with Skipton BS.
It has a £995 fee and also offers free valuation and legal work. Monthly repayments are £536 and the total cost £33,155.
You can ask your existing lender if they will allow you to let out your old home and keep your existing mortgage.But bear in mind they could increase your rate or charge a fee.
If you don’t inform your bank that you plan to let out your property, you’ll be in breach of your mortgage conditions - you could also invalidate your buildings insurance.
There are also a number of deals specifically aimed at first-time landlords looking to let out a property they already own.
Platform offers a two-year deal at 3.84 per cent for borrowers with a 40 per cent deposit. It has a £1,040 fee, a free valuation and free legal work. Monthly repayments are £480 and total cost £12,560.
Regardless of whether you keep your existing mortgage or switch to a buy-to-let deal, both typically demand your rental income is at least 125 per cent of your mortgage payments.
This ensures you will still be able to cover your repayments if your rate increases.
Homeowners delving into the buy-to-let world for the first time need to seek advice from an independent broker.
Before deciding to let their home, owners need to do their homework and find out if there is a strong demand for rental properties in the area.
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