Buy to let remortgages

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In the ever-evolving landscape of property investment, buy-to-let remortgages are a key tool for savvy investors seeking to optimise their portfolio performance. Both novice and experienced landlords can greatly benefit from the financial flexibility and opportunities these remortgages offer. Whether it’s accessing better interest rates, releasing equity for property expansion, or restructuring finances, buy-to-let remortgage solutions can provide substantial benefits.

However, to navigate the complexities of both single buy-to-let remortgage and multiple buy-to-let remortgages effectively, understanding their workings, benefits, potential drawbacks, and how to choose the best deal is paramount. In this guide, we delve into these aspects, empowering you with valuable insights to make well-informed investment decisions.

What is a buy-to-let remortgage?

A buy-to-let remortgage is a process in which a landlord replaces their current mortgage with a new one, either with the same or a different lender. This is typically done for a property that is rented out, rather than one that the owner lives in (hence the term ‘buy-to-let‘).

People opt for a buy-to-let remortgage for a variety of reasons. They might want to get a better interest rate or change their mortgage terms. They might also do it to release equity from the property, which they could use for various purposes such as funding property repairs, improvements, or even purchasing additional properties.

Just like with any other mortgage, the terms of a buy-to-let remortgage depend on a variety of factors, including the property’s value, the rental income it generates, the landlord’s financial situation, and market conditions. It’s important for landlords to carefully consider these factors and potentially seek financial advice before deciding to remortgage.

How does a buy-to-let remortgage work?

A buy-to-let remortgage works in a very similar way to a standard residential remortgage. Here’s a general, step-by-step guide:

Review the current mortgage: Check the current mortgage terms and conditions. This will help in understanding if there are any early repayment charges for switching before the end of the mortgage term.

Research the market: Look at different lenders to compare interest rates and terms. You may want to engage a mortgage broker with specialist knowledge of the buy-to-let market, who can provide advice and help find the best deals.

Property valuation: The lender will carry out a property valuation to determine how much the property is worth. This valuation, along with your rental income, will be a major factor in determining how much you can borrow.

Application: Once you’ve chosen a lender and a mortgage product, you’ll need to complete an application. This will usually involve providing information about your finances and the rental property.

Approval and payout: If your application is approved, the lender will pay off your old mortgage, and the new one will take its place. If you’re releasing equity as part of the remortgage, you’ll receive the additional funds.

Buy-to-let remortgage eligibility

Eligibility criteria for buy-to-let remortgages can vary from lender to lender, but the following factors are typically taken into consideration:

Rental Income: Lenders will want to see that the rental income from the property comfortably covers the mortgage repayments, typically 125–145% of the mortgage payment.

Loan to Value (LTV): The LTV ratio is a key consideration. It’s calculated by dividing the loan amount by the value of the property. A lower LTV often means more favourable rates.

Property Value: Some lenders have a minimum property value for buy-to-let mortgages.

Owner’s Age: Many lenders have a minimum age, often 21 or 25, and might also have a maximum age at the end of the mortgage term, typically 70 or 75.

Credit History: Your credit history will play a part in the lender’s decision. A clean credit history will make it easier to secure a mortgage, but some lenders may still consider you if you have a history of poor credit.

Income: While rental income is key, some lenders may also want to see evidence of personal income.

Number of Buy-to-Let Mortgages: Some lenders may limit the number of buy-to-let mortgages you can have, or the total amount you have borrowed for buy-to-let.

Property Type: The type of property may also impact your eligibility. Some lenders are more cautious with flats in high-rise buildings or non-standard construction properties.

Lease Length: If the property is leasehold, the remaining lease length may be a consideration.

Existing Tenants: Some lenders may require the property to be vacant at the time of remortgaging, while others may prefer tenants to be in place.

When should you remortgage a buy-to-let?

There are several situations in which it may be beneficial to consider a buy-to-let remortgage:

End of Initial Rate Period: Many buy-to-let mortgages come with an initial fixed or discounted rate period. When this period ends, the mortgage typically reverts to the lender’s standard variable rate (SVR), which may be higher. Remortgaging at the end of the initial rate period can help you to secure a new deal and potentially lower your interest rates.

Better Deals Available: If interest rates have fallen or if your credit score has improved since you took out your mortgage, you may find there are better deals available that could reduce your monthly repayments or the overall cost of the loan.

Change in Circumstances: If your circumstances have changed, such as a significant increase in the rental income you’re receiving or a change in your personal financial situation, you may want to consider remortgaging.

Equity Release: If your property has increased in value, you might want to remortgage to release some of the equity. This could be used to invest in additional properties, make improvements to the existing property, or for other purposes.

Changing Mortgage Term or Repayment Type: If you want to change the length of your mortgage term, or switch from an interest-only to a repayment mortgage (or vice versa), remortgaging can allow you to do this.

Before deciding to remortgage a buy-to-let property, it’s important to consider all the costs involved. Early repayment charges might apply if you remortgage before the end of your current deal. There may also be fees associated with the new mortgage, such as arrangement and valuation fees.

Why would you remortgage your BTL property?

Remortgaging a buy-to-let (BTL) property can offer a number of advantages, depending on your financial situation and the current market conditions. Here are some reasons why landlords may choose to remortgage their BTL property:

1. Securing a Lower Interest Rate: If interest rates have fallen or if your credit rating has improved, you may be able to secure a lower interest rate by remortgaging, which can reduce your monthly repayments.

2. Fixing Your Rate: If you’re concerned about future interest rate rises, you may choose to remortgage to a fixed-rate deal. This can give you certainty over your future repayments for the duration of the fixed term.

3. Releasing Equity: If your property has increased in value, remortgaging can allow you to release some of this equity. The funds can be used for a variety of purposes, such as refurbishing the property, investing in more properties, or even covering personal expenses.

4. Changing Mortgage Term: If your financial situation has changed, you might want to adjust the term of your mortgage. For instance, you could shorten your mortgage term if you can afford higher monthly payments, or extend the term to lower your monthly costs.

5. Switching from an Interest-Only to Repayment Mortgage: Landlords often initially opt for interest-only mortgages for their BTL properties to keep the repayments low. However, some may choose to switch to a repayment mortgage via remortgaging to gradually pay down the capital and reduce the overall debt.

6. Avoiding a lender’s Standard Variable Rate (SVR): Most mortgage deals revert to the lender’s SVR at the end of the initial term, which is often higher. To avoid this, landlords often remortgage towards the end of their current mortgage term.

7. Consolidating Debts: If a landlord has other high-interest debts, they might choose to remortgage to consolidate these debts into the mortgage, where interest rates might be lower.
Keep in mind that while there are potential benefits to remortgaging, it’s also important to consider the costs, such as early repayment charges and remortgaging fees. Consulting with a financial advisor or a mortgage broker could be beneficial in making an informed decision.

Do you need a deposit for a buy-to-let remortgage?

In most cases, you do not need to provide a new deposit when remortgaging a buy-to-let property. This is because the equity that you already have in the property essentially serves as a deposit.

When you remortgage, you’re simply taking out a new mortgage to pay off the existing one. The amount you can borrow will generally depend on the property’s value and the amount of equity you have.

For example, if you originally purchased a property for £200,000 with a deposit of £50,000 and a £150,000 mortgage, and the property is still worth £200,000 but you’ve reduced your mortgage to £130,000, you have £70,000 equity in the property. If you’re remortgaging, that £70,000 equity serves as your “deposit”.

However, if you want to borrow more than your existing mortgage balance, perhaps to release equity for renovations or to purchase additional properties, then the loan-to-value (LTV) ratio comes into play. The lower the LTV (i.e., the more equity you have in the property), the more favourable the terms you’re likely to get on the remortgage, as it’s less risky for the lender.

Accessing equity by remortgaging

Accessing equity through remortgaging, also known as equity release, is a process where you take out a new mortgage that is larger than your existing one on a property that has increased in value. The difference between the old mortgage and the new one is the equity that you ‘release’ or ‘extract’ from the property.

Here’s a simple, step-by-step explanation:

Property Valuation: First, you’ll need to get a current valuation of your property. Let’s say you purchased a property for £200,000, and now it’s worth £250,000.

Existing Mortgage Balance: Determine the remaining balance on your existing mortgage. For instance, your original mortgage was £150,000, and you’ve paid it down to £100,000.

Equity Calculation: The difference between the current value of the property and the outstanding mortgage is your equity. So, in this case, your equity is £150,000 (£250,000 current value – £100,000 mortgage balance).

Remortgage Application: If you apply for a remortgage, you could potentially borrow against this equity. The amount you can borrow will depend on the lender’s terms and conditions, your credit status, and the rental income from the property.

Equity Release: For example, if you remortgage for £130,000, you’d use £100,000 to pay off your existing mortgage, and the remaining £30,000 is the equity you’ve released. You can use this money for a variety of purposes, such as investing in another property, making home improvements, or for other personal or business needs.

Selling your buy-to-let to access equity

Selling your buy-to-let property is another method of accessing the equity you have in the property. When you sell a property, you repay the outstanding mortgage from the sale proceeds, and any remaining amount is your equity, which you get to keep.

Here’s a simplified example:

Current Property Value: Let’s say you have a buy-to-let property that is now worth £250,000.

Outstanding Mortgage: You still owe £100,000 on your mortgage.

Selling the Property: If you sell the property for its full value of £250,000, you would then pay off the remaining £100,000 of the mortgage.

Accessing Equity: After repaying the mortgage, you would be left with £150,000. This is your equity and can be used as you see fit.

Remember, though, that selling a property to access equity comes with its own costs and considerations:

Selling Costs: You have to factor in estate agent fees, solicitor’s fees, and potentially capital gains tax (depending on your income and whether you have other capital gains during that tax year). These costs can significantly reduce the amount of equity you can access.

Market Conditions: If the housing market is experiencing a downturn, you might not be able to sell your property for the desired amount, and hence you might not access as much equity as you’d hoped.

Loss of Rental Income: Selling a buy-to-let property means you will lose the regular rental income that the property was generating.

Therefore, while selling can be a good way to access equity, it’s important to carefully consider these factors and potentially seek advice from a financial advisor or estate agent to ensure it’s the best decision for your situation.

How do interest rates work when remortgaging a buy-to-let property?

Interest rates on a buy-to-let remortgage function similarly to those on an initial mortgage, and they can vary depending on the specific deal you choose and the lender’s criteria. Here’s how it works:

1. Type of Interest Rate: When remortgaging, you can typically choose between a fixed-rate, a variable rate, or a tracker mortgage. A fixed-rate mortgage sets your interest rate for a specific period (usually 2, 3, 5 or 10 years), after which it reverts to the lender’s standard variable rate (SVR). A variable rate mortgage means the interest rate can change at any time based on decisions by the lender. A tracker mortgage rate changes in line with another interest rate, usually the Bank of England’s base rate.

2. Loan-to-Value (LTV): The interest rate you’re offered will often depend on the LTV ratio, which is the percentage of the property’s value that you’re borrowing. The more equity you have in the property (and hence the lower the LTV), the lower the interest rate you’re likely to be offered.

3. Rental Income: For buy-to-let mortgages, the rental income from the property will also be a factor. Lenders usually require that the rental income is 125% to 145% of the mortgage repayments, to provide a buffer against rental voids or unexpected costs.

4. Personal Circumstances: Your personal income, credit history, age, and the number of properties you own can all impact the interest rate.

When you remortgage, the goal is often to secure a lower interest rate than your current one, thereby reducing your monthly repayments or the overall cost of the loan. However, it’s important to consider all costs involved, such as any early repayment charges on your existing mortgage and the fees for the new mortgage. As always, seeking professional advice can help you understand the potential costs and savings involved.

What are the fees you pay when remortgaging a buy-to-let property?

Remortgaging a buy-to-let property can involve several fees, and the exact costs can vary depending on the lender, the type of mortgage deal, and your own circumstances. Here are some of the potential fees you might need to consider:

1. Early Repayment Charge (ERC): If you’re remortgaging before the end of the initial period of your current mortgage (for example, during a fixed-rate period), your current lender may charge you an early repayment fee. This can often be a significant cost, usually a percentage of the outstanding mortgage.

2. Arrangement Fee: This is a fee the new lender assesses for setting up the mortgage. It can also be known as a product fee, booking fee, or completion fee. Some lenders may offer fee-free deals, but these can often have higher interest rates.

3. Valuation Fee: The new lender will usually require a valuation of the property to ensure it’s worth the amount you want to borrow. The cost of this can vary depending on the value of the property.

4. Legal Fees: You will need to hire a solicitor or conveyancer to carry out the legal work associated with the remortgage. Some lenders may offer free legal work as part of the mortgage deal.

5. Broker Fee: If you’re using a mortgage broker to find the best deal and assist with the application process, they may charge a fee for their service.

6. Exit Fee (also called a Deeds Release Fee or Admin Fee): This is a fee charged by your existing lender for closing your current mortgage.

7. Higher Lending Charge: This is sometimes charged by lenders if you’re borrowing a high percentage of the property’s value (a high loan-to-value ratio).

When considering a remortgage, it’s important to factor in all these potential costs to ensure that remortgaging is financially beneficial. It can be helpful to seek advice from a mortgage broker or financial advisor to understand the potential costs and savings involved.

Should I remortgage to a buy to let property with my bank?

Choosing to remortgage your buy-to-let property with your current bank can have advantages and disadvantages, and it ultimately depends on your individual circumstances and the deals available at the time.

Advantages

1. Existing Relationship: As an existing customer, your bank already has access to your financial records, which could streamline the application process.

2. Customer Loyalty Benefits: Some banks may offer beneficial terms to existing customers to encourage them to stay with the bank. This could include preferential interest rates or lower fees.

3. Convenience: Having all your finances with one institution can make managing your money easier.

Disadvantages

1. Limited Options: If you only look at remortgaging offers from your current bank, you’re limiting your choices. Other lenders might offer deals with lower interest rates or better terms.

2. Negotiating Power: As an existing customer, your bank might assume you are more likely to stay with them, meaning they may not offer you the most competitive deal initially.

Before deciding to remortgage with your existing bank, it’s a good idea to compare the deals they’re offering with those available from other lenders. Using a mortgage broker can help with this, as they can provide advice and access a wide range of mortgages from different lenders. It’s important to not just consider the interest rate, but also the fees, terms and conditions, and type of mortgage (fixed, variable, tracker, etc.).

Also, remember that each application could potentially affect your credit score, so it’s generally best to research options thoroughly before making applications. Be sure to read the terms and conditions of any mortgage offer carefully, and consider seeking professional advice if you’re unsure.

What do you need to consider when choosing a remortgage rate?

Choosing a remortgage rate is a crucial decision that can have long-term financial implications. Here are some factors to consider when making this decision:

Type of Rate: Mortgages can have fixed, variable, or tracker rates. Fixed rates offer the certainty of the same monthly payments for a specific period. Variable rates can change at any time depending on the lender’s decision, and tracker rates follow another interest rate (usually the Bank of England base rate) plus a set margin.

Interest Rate: The lower the rate, the less you pay in interest. However, the lowest rates often come with higher arrangement fees, so you need to work out the total cost over the term of the deal.

Product Fees: Some mortgage deals come with high product fees. You should factor in these costs when comparing rates. Sometimes, a mortgage with a slightly higher rate but lower fees might be cheaper overall.

Flexibility: Some mortgages allow overpayments, underpayments, or payment holidays. If you think you might need this flexibility, look for a mortgage that offers these features.

Term of the Rate: Fixed, tracker, or discount rates are usually for a specific period (2, 3, 5, or 10 years). After this, you’ll likely revert to the lender’s standard variable rate (SVR), which is often higher. Consider how long you’re happy to commit to a deal. Longer terms give you more certainty about your payments, but they often have higher rates and ERCs.

Your Financial Situation: Consider how secure your income is. If your income is not stable, you might prefer a fixed rate for budgeting certainty.

Can I remortgage my home to a buy-to-let?

Yes, it’s possible to remortgage your residential home as a buy-to-let (BTL) property, but there are several factors to consider.

Firstly, you’ll need to get permission from your current lender or remortgage to a new lender who offers buy-to-let mortgages. Not all lenders offer these products, and those that do will have specific criteria that you need to meet. This will usually include a requirement that the rental income from the property is a certain percentage (usually 125% to 145%) of the mortgage repayments.

Secondly, moving from a residential mortgage to a buy-to-let mortgage may result in a higher interest rate, as lenders generally see buy-to-let properties as a higher risk than residential properties.

Thirdly, the process will also involve a change in your property’s use. If you’re planning to let out your property and move somewhere else, you’ll need to inform your insurer and potentially your local council (for tax purposes). You may also need to consider landlord insurance to cover potential property damage and protect against rental arrears.

Lastly, it’s worth noting that buy-to-let mortgages are usually interest-only, which means that you’ll be required to pay off the mortgage in full at the end of the term. If you plan to sell the property to do this, you should be aware that house prices can go down as well as up.

Finding the best buy-to-let remortgage deal

Finding the best buy-to-let (BTL) remortgage deal involves several steps and considerations.

Here are some tips to guide you:

Determine Your Needs and Goals: Are you looking to reduce your monthly payments, change your loan type, or release equity from the property? Understanding your objectives can help you identify the most suitable products.

Check Your Current Mortgage: Review your current mortgage agreement, particularly regarding early repayment charges. These could affect the timing of your remortgage and whether it’s financially viable.

Understand Your Property’s Value: A significant factor in remortgage deals is your property’s current value, as this affects your loan-to-value (LTV) ratio. You can get a rough idea of your property’s value from local estate agents or online property portals.

Review Your Financial Situation: Lenders will look at your rental income, personal income, and credit score when considering your application. It’s important to have a clear understanding of these aspects.

Use Comparison Tools: There are many online tools and websites that allow you to compare different mortgage products based on your specific details.

Consider Fees: Some mortgages may seem attractive due to low interest rates but come with high arrangement or booking fees. Make sure to factor these into your comparisons.

Seek Professional Advice: A mortgage broker or financial advisor can be very helpful. They can offer advice tailored to your situation, access a wide range of mortgage products, and guide you through the application process.

Think About the Future: Consider potential changes in your circumstances and in interest rates when choosing between fixed and variable rate mortgages. If you think rates might increase in the future, a fixed-rate deal could be a good option.

Check Terms and Conditions: Different mortgages come with different terms and conditions, including restrictions on overpayments, underpayments, or renting to certain types of tenants. Make sure any mortgage you consider aligns with your plans for the property.

Finding the best BTL remortgage deal is not only about getting the lowest interest rate; it’s also about finding a mortgage product that fits your financial situation and meets your investment objectives. It may take time and require professional advice, but doing your due diligence can save you money and help ensure your investment is successful.

Can you remortgage a buy-to-let property? 

Yes, you can remortgage a buy-to-let (BTL) property. When considering a remortgage, it’s important to factor in potential costs such as early repayment charges, exit fees from your current lender, arrangement fees for the new mortgage, and valuation and legal fees. You should also be aware that lenders will assess your circumstances, including your income, credit history, and rental income from the property, before agreeing to a remortgage.

Why use a mortgage broker for a BTL remortgage?

Using a mortgage broker for a buy-to-let (BTL) remortgage can offer several advantages:

1. Access to More Products: Mortgage brokers often have access to a wider range of mortgage products than you might find on your own. Some lenders work exclusively with brokers, meaning you wouldn’t be able to get those deals if you went directly to the lender.

2. Expert Advice: Brokers have expert knowledge of the mortgage market and can provide advice tailored to your situation. They can help you understand the different types of mortgage products available and which might be the best fit for your circumstances.

3. Time and Effort Saving: Searching for a mortgage can be time-consuming. A broker can save you time and effort by doing the legwork for you. They can compare different mortgage deals, liaise with lenders, and manage much of the application process.

4. Navigating Complex Situations: If you have a complex financial situation (such as being self-employed, owning multiple properties, or having a poor credit history), a broker can help navigate these complexities and find lenders who are willing to lend to you.

5. Cost-Effective: While brokers charge fees for their services, they could potentially save you money in the long run by helping you find a more competitive mortgage deal.

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