How to Remortgage a Buy to Let Property
Buy to let property is a great investment in terms of generating rental income and capital growth over time in the property’s value.
Remortgaging a buy to let property can release equity to expand your rental portfolio or undertake renovations of your existing one.
Alternatively, remortgaging can also decrease costs by securing a mortgage deal with lower monthly interest.
Securing the best buy to let (BTL) remortgage can be a little more difficult. Here we explain factors to consider when securing your BTL remortgage.
How does a buy-to-let remortgage work?
In general, a BTL remortgage is switching an existing deal to a new one.
Compared to homeowner mortgages, they have higher interest rates and fees. They also require a higher deposit of around 25%, although this can vary from 20-40% between lenders.
If switching providers, the remortgaging process will however take longer. The full mortgage application will start from scratch. This includes credit and affordability checks to make sure you can maintain repayments on your mortgage.
When comparing deals, consider whether you want to pay higher fees and receive a better rate or pay low fees and a higher rate.
Speaking to a qualified mortgage broker and shopping around can help you get the best deal for a remortgage.
What do banks require for remortgaging:
Before applying, mortgage lenders will need to know how much your property is worth. An up-to-date valuation of the rental property will be needed. This is for lenders to determine how much to borrow based upon equity in the property.
Depending on whether the property is registered to an office or yourself, lenders will consider your income and credit score. This will include the property’s rental value and any others in your portfolio.
Types of buy to let mortgages:
In general, when looking for a buy to let (re)mortgage you will find the same types as a residential mortgage. The most common remortgage deals include:
1) A fixed-rate mortgage – the interest rate remains the same for a set amount of time.
A good option if you would rather payments remain the same. A fixed rate protects against any possible inflation of the Bank of England’s interest rate.
However, with a fixed rate, you won’t be able to benefit from lower payments if interest rates decrease.
2) Tracker mortgage – a standard variable rate (SVR) that tracks the Bank of England base rate.
Mortgage payments can therefore fluctuate. This is good when interest rates fall as payments will be substantially lower however, if they rise so will repayments.
3) Capped rate mortgage – a variable rate mortgage that is limited with how much the rate can rise.
These have the benefit of maximising on lower interest rates at the same time as avoiding huge increases in payments due to rising interest rates.
4) Discounted mortgage – A different type of variable rate mortgage. These offer a discount on the lender’s SVR for a specific time frame.
5) Offset mortgage – reduces the overall interest you pay on the mortgage by offsetting your savings against them. However, this means interest isn’t able to be gained on the overall savings balance.
Using the equity in your current property to purchase another
Remortgaging a buy to let property to purchase another is commonly done by property investors when expanding their portfolio.
By using the equity in the current property a remortgage would provide the funds for the deposit of the purchase of another.
Factors that can affect your BTL remortgage application include the size of your existing portfolio, what type of product you want to take out (full remortgage, portfolio mortgaged) and the amount of tax you have to pay.
Remortgaging your residential mortgage to a buy to let
When looking at buying a new home, rather than selling your existing one there is the option to rent it out.
Renting could also be a better option than selling depending on how the property market is performing.
If you can’t resell the property for the asking price, or if you overpaid for it to begin with, renting allows you to hold on to the property for longer and recoup costs.
Remortgaging your existing property can also help fund the purchase of another. Rental income can then subsidise the payments on the new domestic mortgage.
The type of tenants renting your property can however affect a lender’s decision when applying for a remortgage. For example students or those on benefits aren’t typically seen as reliable by lenders, so could negatively affect your application.
Equity Release Scheme
It is possible to use a buy to let remortgaged property to help with retirement. If you’re over 55 it is possible to utilise an equity release scheme.
In order to free up equity you can take out a tax-free loan against your BTL property.
Similar to a lifetime mortgage, this doesn’t need to be paid back until you move into residential care or pass away. If this is the case, it would be paid off by the sale of the property or other money in your estate.
How homes4u can help:
Whether it’s for a property valuation or full property management service, homes4u has a service to help.
We have worked alongside landlords for over 30 years. From single properties to large portfolios, we can completely tailor our management services to your individual needs.
Contact our expert team today to find out how we can help you.