The opportunity and rewards for remortgaging a buy to let property are the same as for your main home.
Nearly every landlord will want to move on to a better deal and some may take the opportunity to release some equity. Either way there are some decisions needed as to the best course of action and what’s actually possible.
What is a remortgage?
Remortgaging is the process of changing mortgage lender. For example, you may have an existing buy to let mortgage with Natwest and you remortgage it over to The Mortgage Works as they have a better deal.
The basics are very much the same as remortgaging your own home.
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Why would you remortgage a buy to let?
The primary reason is often because the initial interest rate offer will soon end and so a new deal needs to be found. But there are many different reasons why a property investor would want to change their mortgage lender, here are some of the most common reasons:
To get a better deal
Most mortgages will have an interest rate product (fixed/tracker etc) which lasts for a certain amount of time. When this ends the interest rate you are charged reverts back to a standard variable rate (SVR).
This is normally the least competitive rate that your lender will have. A re-mortgage will allow you to switch over to one of the better buy to let deals available in the market.
Property maintenance
Owning any type of property involves maintaining it and occasionally making improvements. A rental property may struggle to obtain good occupancy if it is in need of repair.
Mortgage lenders will be happy for you to take out some of the equity where the money is to be used for repairs or upgrades. For example you could use the cash raised to install a new kitchen, put in a loft room or maybe renew the central heating.
To finance more properties
Saving up a deposit so that you can grow your portfolio is rarely a practical solution. However, you are able to apply for a remortgage to borrow extra money against some of the equity in your investment property. This is known as capital raising.
For most lenders this is an acceptable reason and loans are available upto 75% loan to value, this percentage obviously includes your existing mortgage balance.
It’s a great way to expand your property ownership. You need to be aware that owning 4 or more BTL properties classes you as a portfolio landlord in the eyes of a lender. This means that the mortgage eligibility and underwriting is a bit more involved, your buy to let mortgage broker will be able to explain this.
Debt consolidation
Whether you have a standard residential mortgage or a buy to let, there is the option to pay off your unsecured debts using the capital raised when remortgaging.
The two main advantages are that the debts are now charged at a much lower interest rate and your overall monthly repayments are lower.
Debt consolidation is not always the right course of action and each lender has their own view on eligibility. Please speak with an independent mortgage broker for more details.
To buy out a partner
There are a few requirements to removing a partner from a buy to let property.
- Changing ownership at Land Registry
- Changing who is on the mortgage
- Buying them out financially
Adding or removing someone from any property is called a Transfer of Equity and requires a remortgage and a solicitor.
A buy to let remortgage could therefore be used to apply for a new mortgage just in your name and borrow the extra money needed to buy them out.
Can I..
..remortgage my home over to a buy to let?
Yes this is possible. It’s a good solution if you are moving away, or moving in with someone else but still wish to keep hold of the property.
Standard residential mortgages do not permit regular or long term rental of the property. Should you wish to rent it out you can either ask your current lender for a ‘consent to let‘ or remortgage to a buy to let mortgage.
If you are letting out your home to then buy and live in a new property then this is known as ‘let to buy’. This involves 2 mortgages that need to be organised so they fit together. Read more about Let to buy mortgages.
You will find more useful information in our article: Switching to a buy to let mortgage
..remortgage my buy to let over to a normal mortgage?
Yes, this will involve applying for a normal remortgage to take the place of any current buy to let mortgage. The new lender will not expect (or allow) the property to be rented out.
This could be needed when reversing the let to buy situation. Perhaps you have now relocated to the area and wish to go back to living in the property.
Or that you just would prefer to live in one of your investment properties.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
When is the best time to remortgage?
You are able to apply for a BTL remortgage at any point during the term of your mortgage. However, there are a few times when some extra consideration is needed.
TOWARDS THE END OF THE PRODUCT TERM – Most borrowers choose either a fixed or tracker rate that lasts for a fixed amount of time. 2, 3, 5 years etc. When this deal ends your mortgage interest rate will change to the lenders Standard Variable Rate (SVR) unless you do something about it.
It is rarely a good idea to pay the SVR as most other deals will be much cheaper.
The best option is to contact your broker a few months before the deal is due to end. You can then line up another product to take over, thus avoiding the expensive SVR. Contact your broker as soon as you receive correspondence from your lender that the deal is ending.
DURING THE PRODUCT TERM – This is obviously not the ‘best’ time! There may be some occasions where you absolutely must remortgage, regardless of the early repayment charges due. This will normally also involve some amount of capital raising.
One reason used to be that your product interest rate is so much higher than what is currently available in the market. Perhaps you have a large (tax) bill that urgently needs paying. Or medical expenses, or school fees.
ERC’s can run to thousands of pounds so it does pay to take some care and consider your options before taking action.
As an alternative, it may be possible to take out a second charge mortgage or even a second charge bridging loan. Your broker will help with the calculations to see which option is financially best.
WITHIN THE FIRST SIX MONTHS OF OWNERSHIP – It’s not uncommon for a property investor to need a day one re-mortgage after owning the property for just a short while. This could be to pay off a bridging loan or perhaps to extract some equity as the property value has appreciated.
Where this is within 6 months of purchase the number of lenders available is quite small. This is due to mortgage guidance for lenders called the ‘6 month rule‘.
Your broker will do this automatically but it is important to check when your product term ends and when the early repayment charges end. Occasionally, the ERC’s can go on for a bit longer, this is known as an ERC overhang.
Eligibility criteria
Here is a quick overview of the lending criteria, for anything specific please contact your mortgage broker.
Age – 21-75
Income – Minimum provable income of £25,000pa
Loan to value – Usually 75% maximum
Credit history – Mortgages for impaired credit are available
Limited company – SPV companies are widely accepted
Ex-pats – Solutions for ex-pats are available
Loan to value (LTV)
Loan to value plays an important part in all mortgages.
Your LTV is the percentage that your mortgage represents when compared to the value of a property. When you purchase a property, your deposit, when added to the amount borrowed, makes up the property price.
For example: You are purchasing a property for £300,000 and have £75,000 as a cash deposit. The mortgage required is £225,000 which is 75% of £300,000.
With a remortgage the LTV takes into account the equity that you have, and this will include any appreciation in property value.
Here’s a remortgage example for the same property: The property is now worth £350,000 and you require a mortgage of £225,000. The loan to value is now 64% based on an equity value of £125,000.
As a lower LTV means reduced risk for the lender they will often provide incentives to attract this type of business. Typically this will be by offering lower interest rates for LTV’s of 60% or below.
Work out your LTV with our loan to value calculator.
What if a remortgage is not possible?
There can be occasions where you need to remortgage to raise capital but either you can’t because of eligibility, or perhaps because of high exit fees.
In these situations you may want to consider a second charge mortgage for a buy to let property.
This means taking out another small mortgage in addition to the main mortgage. This will get you the extra money but they are usually a bit more expensive.
Portfolio landlord
If you own 4 or more let properties then you are classed as a ‘portfolio landlord’ in the eyes of the lender.
There’s no limit to the number you can own but lenders will want to understand your current portfolio.
You will need a schedule or spreadsheet of investment properties within your property portfolio showing financial data such as rent, mortgage outstanding, property values, LTV etc
Getting this correct at the outset can save so much time later on.
You will find more useful information in our article: What is a portfolio landlord?
The remortgage process
Before you can apply for a BTL remortgage you have to find the right deal. Of course, you can do this by yourself and you may save a little bit on the fees.
However, the best buy-lo-let deals are often exclusive to intermediaries and brokers. In fact many of the active lenders will only accept business from brokers.
Once you have decided to apply for a mortgage it’s time to collate all of your documents, proof of income, portfolio analysis etc and send this to the lender. If you are using a broker (hopefully you are!) they will work with you to ensure everything looks OK.
Upon receipt the lender will go through the credit checking process and will make sure your case fits their lending criteria. Then its time to value your property. This could be done by a surveyor visiting but often for a remortgage it is just a virtual desktop valuation.
When the lender is happy they will issue a mortgage offer which details how much they will lend and on what basis. From there it moves on to completion. This is handled by your solicitor and the new mortgage is used to pay off the old mortgage.
Why use a mortgage broker?
Because they are jolly nice people that work really hard!
By using a broker for any mortgage type there are three clear benefits:
- Choice – If you use an independent mortgage broker they will have access to over 100 different lenders and banks, giving you the maximum possible choice.
- Time – Finding and applying for a mortgage takes longer than you think. With a broker assisting you the main burden of finding a loan and dealing with the lender is removed.
- Advice – Only by using a qualified broker can you benefit from their years of knowledge and experience. The advice will not just relate to the mortgage but to your own finances, the deposit and perhaps any future plans you may have concerning the property.
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Expat
Portfolios
Day 1 remortgage
Final Word
A buy to let property is a mini-business. It has income, it has expenses and each year it hopefully makes a profit but occasionally it’s a loss.
The mortgage interest component will be the largest monthly expense against the rental income. By regularly reviewing your mortgage and keeping up with rate changes you will be able to keep the cost of the mortgage as low as possible.
If you work with a mortgage adviser they will contact you in advance of any rates expiring, to allow you enough time to get organised.
With the Section 24 changes to buy to let it is even more important to control your finance costs.
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