Don't let a slump stop you

Times are hard for those needing to sell up and move house. Mortgage brokers report that many buyers are being scared off by warnings of property market stagnation and fears of recession.

That's bad news for anyone wanting a quick sale at a decent price.

One way round the problem is a let-to-buy arrangement. Rather than selling your home and buying another, you let out the existing property and take out another mortgage on the new home. You can either wait until the property market has recovered to sell at a good price, or keep it as an investment for the future.

Patrick Bunton of Bath-based mortgage adviser London & Country says: "We have had a number of buyers withdrawing offers, and deciding to wait for a recovery. From what estate agents are saying, that is not unusual.

"That may force sellers to be more realistic about prices, but it may also mean they decide not to sell."

With a normal buy-to-let deal you stay put, and buy another property purely as an investment. With let-to-buy you move house and let out your existing property.

Mark Smitheringale of Skipton building society says both buy-to-let and let-to-buy deals have similar benefits and pitfalls. "The difference is that let-to-buy arrangements are normally forced on homeowners," he says. "The classic example is someone who has to relocate for their job, and either can't sell their existing home, or are reluctant to lose a toe-hold in a premium area."

A few years ago, buy-to-let deals were at a 2.5% premium to an ordinary home loan; these days investors are paying 1% or less.

There are two ways of letting-to-buy. Both involve taking out an ordinary new loan on the property you are moving to. With the first, the homeowner keeps the existing mortgage, seeking permission from the lender to rent out the property.

Or they can remortgage their existing property on a buy-to-let deal, freeing up capital for a deposit on the new property. These deals are normally more expensive than residential mortgages.

For example, Skipton would add between 0.25 and 0.5 per cent on to your existing mortgage deal in return for allowing you to rent it.

Mr Bunton says many lenders would scrap your existing deal and put you back on to standard variable rate or higher. "That should be the trigger to shop around," he says.

Buy-to-let fixes are available for as little as 5.99%, while Scottish Widows has a tracker at 1.5% over Bank of England base rate, giving a payable rate of 6%.

All lenders will insist on seeing proof, from a reputable letting agent, of the possible rental income. Most, including Halifax, Bristol & West and GMAC, like to see rental income of at least 130% of the mortgage repayments, while some, such as Skipton, insist on 150%.

The Association of Residential Letting Agents (Arla) can put you in contact with an agent in your area who can tell you whether your property is likely to be a goldmine, or destined to spend months empty. "They will be upfront, as they don't want an unrentable property on their books," says Malcolm Harrison of Arla.

Don't assume that because your home is worth a lot, it will be a suitable rental investment.

A three-bedroom former council flat may bring in more than your swanky one-bed loft apartment, even if the two are worth the same.

"In the last property slump," says Mr Smitheringale, "people had to sit tight, but not any more."

Contact Arla: 01923 896 555

· Guy Stansall wanted to move from the commuter town of East Grinstead to Brighton, but his plans hit a brick wall when his two-bedroom house proved hard to sell.

Thanks to some nifty remortgaging, he moved into his new flat in September.

Mr Stansall, a 28-year-old sales manager for a lighting design company, remortgaged the East Grinstead house on a buy-to-let deal with Legal & General which insisted on a minimum rental income of 125 per cent the mortgage repayments.

For the new flat, he took out a mortgage with Abbey National. Both deals were arranged through London & Country, and have left him owing a total of £175,000 on the properties, collectively worth around £275,000. Despite owing nearly six times his salary, Mr Stansall is happy with the risk. "If I was doing it for less than five years, yes, OK, it would be a bit dicey. House prices could fall. But I'm in this for the long-term, and I believe property is the best form of investment."

The seaside flat in Hove, five minutes along the coast from Brighton, is one-bedroom, whereas Mr Stansall had originally wanted a three-bedroom house. "Prices were too high so I had to abandon that," he says. "But because I still own in East Grinstead, I feel I've ratcheted up another notch on the property ladder."

Neither is he worried about being able to let the East Grinstead house. "It was snapped up, and I've got a decent buffer of income over and above the mortgage. I used a letting agent to find the present tenants, but I'll sort out any problems myself."