How property owners are becoming landlords and tenants to upsize their home.

By Richard O’Neill, Managing Director, Lettings at Romans, an LRG company.

You’ve heard of the buy-to-let market. By now, you’ve probably heard of rent-to-rent, but have you heard of another growing housing trend: let-to-let? It’s seeing homeowners become both landlord and tenant in order to get the spacious home they want quickly and within budget.

The pandemic has helped us see things we want to change about the way we live, and for many, that’s our home. Having to live and work within the confines of our own four walls led so many homeowners, myself included, to seek more space, bigger homes and gardens to get time outside this year. But the trade-up to a second, or bigger, property isn’t straightforward for many. According to Rightmove, home movers are having to pay almost £68,000 on average to move from a two-bed flat to a three-bed house – £4,000 more than this time last year.

With the cost of trade-up moves rising and mortgage lending currently extremely competitive, how do homeowners make the move to a bigger property when they need it, whether for lockdown or just to get more space quickly?

Well, the let-to-let process is one answer to that.

How the let-to-let process works

Let-to-let sees homeowners let out their existing – often smaller – home and use the rent they gain to cover the mortgage and rent a bigger property. Rising property prices and a boom in housing demand mean many would-be upsizers aren’t able to invest in the homes they really want. The let-to-let process helps them overcome this issue without being priced out of the market.

I know the benefits it brings first-hand, as I actually went through this process myself earlier this year. When I saw my two-bedroom flat wasn’t going sell in the spring, I decided to rent a three-bedroom house with a garden to give me the space I needed, especially during the summer lockdown. So, I’m now a landlord and tenant at the same time. I’m living in the bigger property I wanted – and due to lower mortgage interest rates, my total outgoings have barely changed.

It’s working for customers too. In one example we’ve seen this year, the customer was able to reduce their original mortgage payments of £1,200 to £935 a month. They then found a rental property at £1,400 per month, while they let out their old flat out for £1,000, minus management fees. So the customers are now covering their mortgage and only spending a couple of hundred pounds extra for a much bigger property.

Originally popular following the 2008 financial crisis, let-to-let is likely to grow in use by homeowners over the rest of this year and next amid another challenging economy. It’s been around in the industry for a long time but so far, it’s not really been utilised by a large sector of the housing market. However, it’s now proving particularly popular with those in leasehold flats, or for anyone finding it difficult to access the mortgage lending needed to trade up in a competitive market.

Since embarking on the process myself, I have found it’s an option people don’t think about until they’re struggling to sell their house. But as we’re living in unusual times, we are finding more and more homeowners looking outside the norm to achieve the home they really want.

Who would benefit from let-to-let?

One of the major benefits of this rental process is that you can do it quickly. Unlike exchanging on a sale, you don’t have to wait three or four months for that move to become a reality. So, as well as those who are finding it hard raise a deposit, or to sell their property for any reason, the process is proving popular with homeowners moving in together in new relationships or needing to size up for a new family.

Let-to-let is also driven by those looking to move areas for jobs or new schools. By renting the property, it allows residents to familiarise themselves with a new neighbourhood before committing to a purchase. And for those who don’t want to sell their first home, it’s also a good way to invest in a second property. In my case, my goal is to use my time in the rental property to save and buy a larger home, while keeping my original flat to let out.

Educating the market

When suggesting this option to potential buyers, I have seen growing interest and demand, but frequently the average house buyer isn’t aware of this potential alternative before they speak to us – usually when they are struggling to sell their home. Many prospective house buyers don’t necessarily think, “I’m struggling to sell, so I’ll rent this out and I’ll rent somewhere else”. With the let-to-let option not widely known, estate agents must now educate buyers to make them aware of the benefits of this process.

Some buyers may see renting a home when you already own one as counterintuitive. But for many who own a smaller home or a flat, it is a good way to expand the size of your property quickly, without compromising on living standards or locations when the lending market is in high demand.

We’re living through a period of rapid change in the housing market. It’s now up to estate agents with local expertise and a high street presence to support their customers to find the home they need in a process that works for them. This is the time to increase the education process around the let-to-let market and advise homeowners to show how it can work for them in uncertain times.

About the author

Richard has over 15 years’ experience in the lettings industry, having joined the Romans’ Reading office in 2006. Richard moved into his current role as Managing Director for Romans Lettings in 2018, where he has a strong focus on both building and managing the company’s lettings portfolio.

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