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Buy to Let Remortgage
Finding a remortgage for a buy to let property can be simple, but if you fall outside of any of the generic criteria used by most mainstream lenders, it can be substantially more complex!
It's also imperative you have an overview of the range of deals on the market to ensure you don't end up paying more for your remortgage than you need to.
As specialists in mortgages for rental properties, the Revolution Brokers team has created this guide to help make your buy to let remortgage run smoothly.
Here we'll explain how to find the most competitive remortgage deals and how a lender will assess your application.
Reasons to Apply for a Buy to Let Remortgage
There are many reasons a landlord or property investor might opt for a remortgage - for example:
- To switch from a more expensive deal to a lower interest rate.
- To release equity to raise capital for another property purchase.
- To change the terms of the buy to let mortgage you are currently on.
One of the most common scenarios is that you've come to the end of a fixed-term deal and need to remortgage to avoid paying unnecessarily high-interest rates on your lender's Standard Variable Rate (SVR).
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What Does a Buy to Let Remortgage Involve?
Applying for a remortgage on a buy to let property is much like any other - you can either change to a different lender or stick with your existing lender and negotiate a new buy to let mortgage deal.
The key is to define what your buy to let remortgage application is for, whether you're refinancing an existing investment property, looking for more competitive interest rates or opting to repurpose a home into a rental residence.
Many landlords remortgage buy to lets to raise finance for a deposit in a new investment or development project, releasing equity to fund the capital required for a down payment.
Here's where things can get interesting since most lenders have rules to lend against a property portfolio of up to four assets. In contrast, others will manage mortgages against up to 20 residences per borrower.
You must identify why you intend to remortgage your buy to let and assess things like lender eligibility and policies before applying. This process will be vital in determining the buy to let remortgage providers most likely approve your application.
In general, you'll need to provide several details (although that is mitigated if you're staying with the same lender) - because they'll need to review metrics such as:
- The retail value of the property on the open market.
- Anticipated rental income in the years covering the mortgage term.
- Your eligibility as a buy to let remortgage applicant.
- Plans for the property - such as renovation, sale or refinancing.
If in any doubt about the right sort of remortgage to apply for, we'd recommend you contact the Revolution Finance Brokers team for independent advice about the most suitable products.
How Lenders Review Your Remortgage Buy to Let Purpose
A lender will want to know the reason behind the remortgage application.
The circumstances can have a material impact on the kind of deals you'll qualify for and which lenders we'd recommend you apply to.
For example, an equity release remortgage to raise funds for improvement projects, or use as a deposit for another investment, will usually be assessed differently than if you want to find a better interest rate.
Remortgage Buy to Let Application Tips
The rental property landscape is changing continuously, so it's worth being up to speed with what lenders are looking for - and the kind of application points that will make them far more likely to offer approval.
Our advice would be to include as much detail as possible in the initial application, thereby cutting down uncertainty and reducing the workload of the underwriters who will make the eventual decisions about whether to lend, so:
- Providing information about the capital gains, personal assets and rental income in the investment refinancing project.
- Showing details of your current equity and the remortgage value requested, including valuations or rental income projections.
- Evidencing your credit record - lenders will uncover any adverse credit in any case, so it pays to be open about any potentially difficult issues that will arise at some point during the application assessments.
Along with these tips, we'd recommend you investigate whether your existing lender charges early repayment fees and how close you are to the cut-off.
Finding Buy to Let Remortgage Deals to Release Equity
An equity release remortgage is an excellent option if you've built up a significant chunk of equity and could use the cash for other purposes.
The challenge is that some lenders have restrictions on why they'll lend.
Below we'll run through some of the potential scenarios to shed a little more light on this area.
Remortgage Buy to Let Release Equity Examples
- Remortgaging to Raise a Deposit - you can release equity to raise cash for a property deposit, but lenders may impose a limit on the maximum number of rental properties they will finance - usually four investment homes.
- Property Improvement Remortgages - most lenders will allow you to remortgage a buy to let to raise cash to carry out improvements since this will generally mean the property is worth more and offset the mortgage risk.
- Debt Consolidation Remortgages - remortgaging to repay debts can be tricky since lenders may set a cap on the Loan to Value (LTV) you can borrow. Some lenders also won't lend for debt consolidation, so it's essential to work with an experienced broker before sending off any applications.
- Buying Out a Property Investment Partner - another situation could be that you want to buy out a partner from a mortgage, which is usually acceptable with most lenders. That said, you'd need to go through the whole application process again, even if you aren't changing lenders, with the same assessment criteria.
If you're looking at remortgaging a buy to let solely to achieve a more affordable interest cost, the timing is crucial.
Remortgage too early, and you could find yourself with considerable early exit penalties.
Move too late, and you'll have already switched to the SVR and need to cover those extra costs until your remortgage is complete.
How Profitable Are Buy to Let Remortgage Deals for Further Property Investment?
Like any investment, if you're remortgaging a buy to let mortgage to purchase another property, you'll need to do your sums carefully to ensure the cost of the higher mortgage remains profitable.
Interest isn't the only charge to consider, so factor in:
- Mortgage application or product fees.
- Early repayment charges from your existing lender.
- Legal fees, Stamp Duty and income tax.
- The cost of running and managing the new property.
Most landlords use the property as a long-term investment, and provided the rental income returns a profit after all expenses; they normally gain from capital appreciation over time.
Can I Remortgage Residential to Buy to Let?
Another scenario could be to remortgage your residential home and use the cash to invest in a buy to let property.
This process isn't unusual and is called a let to buy loan, often occurring because partners move in together and want to keep the second property as a rental investment or because they have inherited a home.
There are several options here:
- Remortgaging from a residential product to a buy to let loan.
- Requesting consent to let from your existing lender.
Note that taking action is vital; you cannot rent out a property on a residential mortgage without permission from your lender and need to remortgage onto a specific product designed for rental properties.
Remortgaging to Buy to Let Advice on Loan to Values
The LTV is just as important on a buy to let mortgage as any other. The lender will need to know how much you want to borrow and how much equity you own in the property.
Every lender is different, so it's wise to consult a broker before applying since your default lender may automatically reject the application if the LTV is too high.
- A rental property worth £250,000 with a £100,000 remortgage means you're applying for 40% LTV, which is a low LTV and a reasonably easy prospect.
- If you want to borrow £160,000 on that same rental investment, the LTV is 64%, and some lenders may not be satisfied with this level of borrowing.
Generally, you can borrow up to 75% or 85% of the property value, depending on the circumstances.
There are also niche lenders who will lend up to 90% LTV, although this is less common in the buy to let market.
Finding a Remortgage Buy to Let Mortgage With Bad Credit
If you have bad credit, it's often difficult to secure a buy to let remortgage with a high street bank since they have strict eligibility rules.
However, Revolution Brokers regularly works with landlords, negotiating favourable remortgage rates despite adverse credit history.
There are many reasons you might struggle, including a low credit score, history of late payments or more severe credit issues including CCJs, IVAs or bankruptcy.
The key to finding a bad credit remortgage is to work with a broker with whole-of-market access and experience dealing with specialist lenders who will focus on rental income and profitability over and above an arbitrary credit score.
Why Do Exit Penalties Have Such a Bearing on a Remortgage Buy to Let Mortgage Application?
Exit penalties are charges levied by a mortgage provider if you leave before a fixed-term period is over.
It's essential to check whether any charges apply because they can be extremely steep and make it unviable to remortgage until your fixed period has ended.
How Personal Income Impacts Your Buy to Let Remortgage Rates
Lenders always have their own eligibility rules and criteria, so you must understand whether you qualify for the buy to let mortgage you want, based on your personal income.
Requirements vary but could include:
- A minimum annual income of £25,000 for a first-time landlord.
- Meeting a threshold rental income capacity against the mortgage interest (more on that shortly!).
- Having a certain number of years of experience managing buy to let properties.
Buy to let remortgages usually consider rental potential as a primary factor, rather than a separate income stream.
Still, most lenders will want to check out your debt to income ratio before approving a remortgage application.
Easy Ways to Improve Your Offered Buy to Let Remortgage Rates
There are several ways to strengthen your remortgage application and improve the offered rates - one of which might be setting up a limited company.
As tax reliefs have tapered, many landlords buy through or transfer buy to let assets to a limited company, normally a Special Purpose Vehicle or SPV.
The benefit is that all costs, inclusive of mortgage interest, are tax-deductible, and corporation tax rates are lower than personal income tax bands.
However, it remains important to research because of mandatory rules around filing accounts. You'll still need to pay income tax on any drawings you make or dividends paid out from your property rental business.
Although buy to let lenders won't necessarily offer lower rates on a company buy to let remortgage, it might make it easier to gain approval if you're struggling to find a lender.
When is the Best Time to Plan for a Buy to Let Remortgage?
We normally suggest you start planning a remortgage around six months before the date you plan to switch your mortgage product.
It doesn't often take such a long time to get a deal in place, but it means you have a buffer period where you can assess different products and lenders and don't feel any pressure to rush into an agreement on a high standard variable rate.
The six months gives you sufficient time to collate all the required paperwork and pass any checks.
Rental Property Affordability Assessments to Remortgage Buy to Let Property
The rental income generated by your asset will depend on many factors, including the condition of the accommodation, location and size.
Lenders need to ensure that any remortgage they offer is affordable, so they'll look at your personal income, anticipated rent and the property's value.
In most cases, you need to demonstrate that the property will return 125% in rental earnings against the interest payable on your mortgage.
For example, if you earn £18,750 in rent per year, you can usually take out a buy to let mortgage with annual interest costs of up to £15,000.
The required rental income will increase if you are a higher or additional rate taxpayer, usually stipulating that the earnings need to be 140% or 160% of the monthly interest cost.
A buy to let lender will also stress test your affordability to verify whether you'd still be able to afford the interest payments if rates increase.
Most lenders use a 5.5% interest rate to see if the rental income will still meet the 125% cap based on these theoretical higher monthly costs.
How to Remortgage Buy to Let Property Affordably
There are a couple of scenarios where it may not be affordable to remortgage.
If your mortgage balance is very small (say £50,000 or less), you probably won't make any savings by remortgaging. That's because high fees will still apply and be a much larger proportion of the loan you need.
Most lenders won't consider any loan beneath £25,000.
Lower value mortgages are possible, but we'd advise you to work with a professional broker to find products with small fees.
Another unaffordable situation is where you have a hefty early repayment charge. If it'd cost more than you stand to save, it's not worth remortgaging.
In this case, you can ask your lender for a product transfer rather than a remortgage with a different provider, which normally means you'll get a lower early repayment charge.
How Tenant Types Can Impact Your Best Buy to Let Remortgage Options
Some lenders will only approve buy to let remortgages for properties with a specific type of tenant.
Examples of potential tenant types that may need specialist advice include:
- Student tenancies - student rentals often cost more to maintain so some lenders won't lend against this type of rental property.
- Benefits tenants - again, some lenders consider tenants on benefits a risk, although most will waive that restriction if your tenant receives disability benefits.
- HMOs - houses of multiple occupations are often more exposed, but lenders will consider the remortgage more favourable if the tenants are professionals.
- Sitting tenants - this can make a buy to let remortgage much more complex since a lender will recognise the potential for the tenant to call on their right to remain in the property for life and pass the tenancy onto a beneficiary.
Please get in touch if you need a buy to let mortgage for a property with sitting tenants. The scenario is more challenging because the 'fair rent' rules may mean a mainstream lender won't consider the application.
However, specialist mortgage providers may be happy to help with support and negotiation from the Revolution Brokers team.
Applying for a Buy to Let Remortgage on Different Property Types
The next factor is the nature of the buy to let property you wish to remortgage. You'll likely not encounter any problems if it's a standard brick building with a slate roof.
However, anything considered non-standard can be more difficult, including:
- Flats and high rise buildings.
- Home with a thatched roof.
- Properties built from stone, wood frames or metal frames.
- Accommodation with solar panels.
- Roofs constructed from tin or felt.
That doesn't mean you can't remortgage this type of rental property, but you usually need to approach a niche lender with less rigid property eligibility requirements.
Mainstream lenders tend to restrict lending only to those lowest-risk properties since anything less conventional has a higher chance of incurring extensive maintenance costs and potentially impacting the borrower's ability to keep up with the interest payments.
How a Broker Can Help Secure the Best Buy to Let Remortgage Deals
There are millions of mortgage products out there, and if you're remortgaging a buy to let the rates you pay and the deal you choose could make a considerable difference to your profits.
A broker is advisable since our role is to assess your borrowing needs before you make an application to identify ways to improve your prospects, options to make the application more attractive, and products that provide the most suitable solution.
Once you've chosen a mortgage to go for, we negotiate directly with the lender to put your application forward and ensure your rates are competitive.
Using a Buy to Let Remortgage Comparison to Find the Best Rates
There are thousands of potential remortgage products to choose from, and a lot depends on your income, credit history, deposit value, and equity ownership.
The best way to find a competitive buy to let remortgage deal is to work with a broker with an in-depth knowledge of the market.
Our team assesses your circumstances and the remortgage scenario in detail before making any recommendations, which is key to avoiding rejected applications or using a lender whose eligibility criteria you can't meet.
We wouldn't advise relying on any rates tables or online calculators for anything other than a rough indication of how much you might be able to borrow.
That's because calculators only display results from lenders paying to advertise their buy to let deals.
Likewise, published rates are only ever estimated, and the actual rates quoted will vary considerably depending on all of the criteria we've discussed here.
What is the Best Buy to Let Remortgage Deal For Me?
We can't give a one-size-fits-all answer since the right buy to let remortgage will depend entirely on your circumstances, the property, rental income levels and how much you'd like to borrow.
Broadly speaking, the mortgage categories on a remortgage are the same as usual - so you might opt for a fixed-rate or tracker rate loan.
A lot relies on your objectives. A fixed-rate mortgage might cost more long-term than a variable rate product, but the positive is that you know exactly your monthly interest costs and won't get any surprises.
The downside is that if interest rates drop, you'll be stuck with a higher rate until your term ends.
Working with an experienced broker is the best way to make an informed decision, understand the pros and cons and choose the mortgage product that aligns with your longer-term financial goals.
Compare the Market Buy to Let Remortgage Advantages
Many clients come to Revolution because they've seen a brilliant deal on a price comparison site or have applied and been rejected and don't understand why.
There are advantages to using compare the market sources, and they can be a useful starting point in your search for the optimal buy to let mortgage.
You might hear of a lender you're unfamiliar with or begin to consider specialist mortgage providers that offer very different mortgage products from those on the high street.
Compare the Market Buy to Let Remortgage Disadvantages
The big downfall to comparison sites is that they're only there to give a general overview - any product, mortgage rate or interest quoted is indicative, and the actual terms on offer are usually somewhat different.
Another reason to be cautious is that a comparison service knows nothing about your circumstances, so it could easily suggest a wildly unsuitable product.
For example, suppose you're remortgaging your first buy to let property and haven't been in the property investment market for long.
In that case, many high street lenders won't offer to refinance until you have a good two or three years of experience.
Likewise, the service won't know if you're locked into an introductory period, so it could suggest price savings that aren't close to being accurate.
Remember - a price comparison site only displays the brands that pay to advertise there.
Even if the list of available remortgage products looks big, it's a fraction of the choice available through a whole-of-market broker.
Expert Remortgaging to Buy to Let Advice
As we've seen, there are all sorts of reasons you might want to remortgage a buy to let property, and several criteria a lender will assess before they decide whether to make an offer and, if so, at what interest rates.
The right buy to let remortgage deals will often vary between landlords.
For example, if you have a bad credit history, a specialist lender in this field may be the fastest way to secure the lending you need to release equity for debt consolidation.
Alternatively, suppose you want to remortgage to reduce your interest costs and own a significant number of portfolio rental properties.
In that case, another lender might be far better placed to accept your application.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.