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Remortgaging Your Buy To Let And Getting a Great Deal in the Process

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By Pete Mugleston   Mortgage Advisor

Last updated: 23rd November 2018

If the question is, can I remortgage a buy to let property? Then the answer is ‘yes’. You might even be able to remortgage a buy to let within 6 months of purchasing.

Getting the best buy to let (BTL) remortgage for you depends on your situation and a number of key factors, covered in this article:

If the question is, “can I remortgage a buy to let property?” Then the answer is of course ‘yes!’. You might even be able to remortgage a buy to let within 6 months of purchasing, in certain scenarios.

How the purpose for the remortgage impacts the best BTL deals

The reason you are refinancing your buy to let property can have a big impact on which lenders and deals you’ll be eligible for, as those looking to release equity (for home improvements or for deposit to buy another property) may be treated differently to those just looking to switch their buy to let mortgage like-for-like, perhaps to get a better rate.

If you are releasing equity from a BTL

If your question is, can I remortgage my ‘buy to let’ to release equity? Then the quick answer is ‘yes’, with some provisos of course.

The reason for wanting to release the money can play a part in how much a lender will be prepared to lend, if at all.

Remortgage a buy to let for deposit

On occasions a landlord may want to increase their property portfolio, and ‘buy to let’ remortgages are one way of releasing equity to cover a deposit or partial payment.

Although a relatively common practice, there are various rules and regulations in place that can restrict landlords, such as the rules around affordability if the landlord is a higher rate tax payer; or is considered a portfolio landlord (usually when owning over 4 BTL properties), or perhaps where lenders limit the maximum number of BTLs a borrower can own (most 4, some up to 10 and a few unlimited), to reduce the risk associated with owning a larger portfolio of property.

On the other side, it’s also quite possible to remortgage your current home to purchase a ‘buy to let’; releasing equity in this way is something we see a lot of. Whether a full remortgage, a second charge, or a portfolio mortgage is the right thing depends on various factors that your specialist advisor will work through with you.

Release money from BTL for property improvement

Most lenders are happy to remortgage to release equity for your buy to let property if it’s to pay for investment in it, especially if this is likely to increase the value of the property. if it’s in an area that is on the up and up and the money could be used to upgrade the property to take advantage of increased rents in the area.

Release money from BTL for Debt consolidation

Some lenders limit the LTV of the mortgage they’ll lend if the funds being released are for debt consolidation, and other lenders will even not lend at all if for this purpose, due to the increased risk of securing unsecured debt, and for the type of borrower who has amassed debts in the first place.

That said, for many releasing equity in your buy to let to consolidate debt is a simple way of consolidating a number of debts into a single more manageable amount and can considerably reduce your outgoings.

Doing this has saved many borrowers a considerable amount of monthly interest payments, but it’s important to consider turning repayable unsecured debts into interest only secured debts can be putting the property at risk, and there should always be a repayment strategy in place.

Release money from BTL for to buy out a partner

If you own a buy to let mortgage, using the equity to buy out another party from that mortgage, or perhaps even from another property, is certainly a viable option.

In general, this is acceptable with most BTL lenders and involves a re-application to be assessed in your own name, and this is the case whether you want to stay with the same lender or move to a new one.

Usual LTV limits apply up to 75% with most lenders, 80% with a few others, and even up to 85% with a select number of specialists.

Release money from BTL for commercial purposes

You could consider remortgaging a buy to let property to take advantage of a commercial opportunity, such as a commercial building or business venture.

Bear in mind that releasing equity for commercial / business purposes like this, is only acceptable with some lenders, and some of those that do can limit the LTV.

Switching to a better buy to let remortgage interest rate

Another reason to remortgage your buy to let (rather than let it slip onto the lenders’ standard variable rate, or just accept whatever they offer you at the end of your term), is to shop around and try to take advantage of the best ‘buy to let’ remortgage deals available in the market.

Interest rates fluctuate, so it makes sense to get the best deal by regularly reviewing your products before the end of their tie in period and compare buy to let remortgage rates across the market.

And the best way to do this? Through one of the expert advisors we work with of course!

Can I remortgage my home to a buy to let?

This happens more frequently than you’d think and is known as “Let to buy”.

Many people find themselves ‘accidental landlords’ in this way and can often happen when someone moves in with a partner or perhaps inherits a bigger property leaving their old property with the original standard mortgage to be rented out without a buy to let mortgage.

It can be solved either by asking your lender for ‘consent to let’, or by remortgaging away onto the best BTL deal you can get.

It’s important to remember that failure to notify your lender that you’re letting out your home without a buy-to-let remortgage, would be considered a breach of your contract and some could demand full and final repayment, which would be financially disastrous.

Can I release equity from buy to let for any other purpose?

Many people ask our advisors, can I release equity from my buy to let property for anything? The truth is, you can use buy to let equity release for just about any worthwhile (and legal) purpose, from renovations, a new car, holiday or even a wedding.

If you are remortgaging your BTL to a main residential mortgage

There are all kinds of reasons why a property owner might wish to change from a buy to let to a residential mortgage. Perhaps you have split with your significant other and you now want to live in the buy to let property you own.

For others, it’s a move that might make sense down the line when the time comes to downsize. Maybe you own a smaller buy to let property that you can move into when you’ve sold your main home (or rented that one out for a higher return).

So, if you’re one of the many people asking “can I change my buy to let mortgage to residential?” Get in touch and the expert advisors we work with can help you choose the best course of action.

Is the property in personal name or a Ltd company?

Lenders can offer different deals depending on whether you’re an individual or a limited company.

For investors with small or large portfolios, buying property through a Ltd company can offer significant tax benefits, especially for higher rate tax payers.

Ltd company mortgages are perfect for those who want to buy property as a collective rather than just two individuals, and who wish to shield  themselves from personal liability should things not go according to plan.

Lending criteria for companies differs from individual mortgages in a number of ways, and different company structures are treated differently.

If a trading company wishes to buy a property, the lender will usually want to see two years of accounts showing income and net profitability. The lender may also require a personal guarantee from the directors.

In the case of a SPV (Special Purpose Vehicle), which is a limited company specifically set up to purchase buy to let properties. Again, most lenders will require a personal guarantee from the directors to cover the debt.

You’ll also need a SIC (Standard Industrial Classification) which specifies the what type of business the company is involved with.

Property value / Current loan amount and equity available (loan to value LTV)

All lenders are different and the LTV (Loan to Value) can vary considerably. It also depends on how much you want to borrow and how much equity you have in the property.

For instance if your property is worth £250,000, with £200,00 in equity and you want to borrow £100,000 over 25 years – then your LTV is 40%.

But if you wanted to borrow £160,000 – then your LTV would be 65%.

There are lenders who will grant remortgages up to 90% and a few who may lend even more. The advisors we work with are whole market, so they have access to the right lenders to suit your particular circumstances.

Buy to let remortgages for people with bad credit

Over the years we’ve assisted in hundreds of remortgages for people with bad credit history. Almost every time it’s the same story - customers come to us after being declined by a lender, or even worse, having been turned away by their broker.

Below is a list of potential credit issues you may be faced with as a borrower, and later on we delve into each subject in a bit more detail, discuss the implications of each, and how you go about remortgaging with bad credit.

  • Adverse credit overview
  • Low credit score
  • Mortgage Arrears
  • Defaults
  • County Court Judgements (CCJs)
  • Individual Voluntary Arrangements (IVAs)
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

The fact of the matter is, yes, bad credit remortgages can be harder to arrange, which often results in otherwise eligible customers being treated badly, messed around by brokers or lenders who don’t (or won’t) understand their circumstances, and sometimes they are even misinformed and told that it’s not possible to get a mortgage.

Fortunately, the advisors we work with offer an expert service for customers of all backgrounds. How do we know? Because we train them ourselves, and only license them to handle your type of enquiry, provided they prove they know exactly what they are doing.

How your personal income affects a buy to let remortgage

Every lender is different and uses different criteria when working how much they will lend you.

If you’re a first time landlord, most lenders have a minimum income requirement of £25,000 per annum for a buy to let , but there are a few lenders who may accept less.

Essentially, it’s your basic wage and a number of other types of income, which may include:

  • Bonuses
  • Commission
  • Benefits
  • Second jobs
  • Investments
  • Dividends
  • Etc

They may also take into account outgoings, such as:

  • Debt repayments (car lease, credit cards etc)
  • Contacts (phones, internet etc)
  • School fees
  • Gas/electricity
  • Essentials (food, clothing etc)

These will be used to work how much you’ll have to cover the new mortgage payment, and some might also consider your ability to cover the mortgage payment if the rate was to rise.

The property rental income

The most common question we get with people wanting to get into a buy to let property is, how much rental income can I expect? This depends on many factors including the size and condition of the property and the biggie … location. Buy to let mortgages are usually only approved if the lender thinks they are affordable. This is balanced against your personal income and the expected rent, and the value of the property.

Many lenders require that the annual rental must be at least 125% of your annual mortgage repayments.

As an example, if you’re repayments are £15,000 a year, then the rent should be no less than £18,750. If you want to find out what rental properties are going for in the area you intend to buy in, a good place to start is by checking the local estate agents or Zoopla.

Lenders use ‘Buy to let’ stress tests as a way to check that you have the ability to repay the interest on the mortgage.

For instance, if you have a £150,000 mortgage and a 5.5% interest cover rate is applied, this brings your monthly interest payments to £687.50. The equation is 150,000 x 5.5% = 8250 / 12 months = 687.50.

By factoring in the rate for the rental income of 125%, for the purposes of stress testing, this brings the real monthly costs to £859.38.

Buy to let landlords face remortgage crunch

Originally the benefits of ‘buy to let’ tax relief were quite attractive; however, landlords were hit hard by the new tax rates imposed in 2017 on the money they have to pay.

When it comes to buy to let mortgages, almost all lenders require that your rental income covers, not just the mortgage, but other costs as well.

These include repairs, maintenance, agent’s fees and mortgage interest – As a buy to let costs guide, a recent study estimated the average costs involved with buying a ‘buy to let’ house to be around £8,359 a year.

Generally, the rent required had to be high enough to cover the mortgage payment by 125%, which assumes a nominal interest rate of 5%, but some lenders can ask that rental income be up to 145%.

How tenant types can impact the best BTL deals

The following tenant types can be viewed less favourably by lenders

  • Students
  • Council tenants
  • Tenants on benefits
  • HMO (Houses in Multiple Occupation)
  • Sitting tenants

There are lenders who may unwilling to approve a mortgage based on the type tenants. While students are acceptable to a few lenders, their reluctance comes from a reputation that students have for partying and damage.

Those on benefits can be seen as a risk, but less so if they are on disability benefits.

HMO’s can be more attractive if the tenants are contractors or other professionals.

Sitting tenants can be a major stumbling block to a BTL mortgage, because under the Rent Act of 1977, they have the legal right to remain in the property for life and can even pass on the right to a family member upon their death. They also have the right to a ‘fair rent’ which is often well under the market value. For this reason, lenders are reluctant to agree a mortgage as they classify them as a poor risk.

How the property type impacts BTL deals

Lenders are more comfortable with standard brick with slate roof homes, and any deviation from non-standard construction can affect whether you get the best deal or not. These include:

  • Flats
  • High rise buildings
  • Thatched roofs
  • Stone construction
  • Tin roofs
  • Felt roofs
  • Wooden framed homes
  • Metal framed homes
  • Solar panels

And there are loads of other property types that may affect which lenders will consider your application. Talk to one of the advisors we work with for the right advice on getting the best deal, whatever property type you have.

Who offers the best buy to let remortgage rates?

There are a number of remortgage ‘buy to let’ lenders on the market and they all have different criteria when it comes to remortgaging a ‘buy to let’.

The best rate available to you is dependent on a number of factors including:

  • Your credit history
  • Your income
  • The size of your deposit (higher deposits attract lower interest rates)
  • How much equity you have

The mortgage experts we work with have total access to the market, which means they can find the best buy to let remortgage rates to suit you and your circumstances.

Buy to let remortgage rates in the UK

At the moment buy to let rates are relatively low, but you need to consider the future and the implications of interest rises, so it’s important to consider all the costs associated with owning a ‘buy to let’ such as wear and tear, accidental damage, even income tax and agents’ fees that will need to be covered by the rent you receive.

Proposals put forward by the Prudential Regulation Authority have recommended increasing the criteria for ‘buy to let’ mortgages, as they believed that the ‘buy to let’ sector was at greater risk from interest rate increases and they felt many landlords would not have enough rent to cover the aforementioned costs.

This is why it is vital that when you remortgage a ‘buy to let’ you get the very best specialist advice available.

This is where the expert mortgage advisors we deal with come in. They’ll use all their expertise and experience to find you the cheapest ‘buy to let’ remortgage deal on the market.

Look for the total costs not just rates

You need to bear in mind that the lowest interest rate, doesn’t necessarily mean the best deal.

You have to look at the overall cost including early repayment charges and the setup costs for the new mortgage, which can be quite hefty. In fact, any savings can be wiped out in fees alone.

Again, this is where an expert advisor comes in, guiding you through the traps and pitfalls so you can remortgage a buy to let property and end up with the best possible outcome.

Higher fee and better rate, or lower fee and higher rate?

For instance if the loan is relatively low, say around the £100,000 mark, it might be best to go for the lender with the lower fees, but higher interest. Conversely, if your loan will be around £200,000 or more, then the higher fee with the lower interest rate might be more financially rewarding.

Let’s compare a ‘buy to let’ remortgage deal and rates

Hypothetical Example

Lender A offers a 2yr fixed rate at 3% with £1000 in fees.
Lender B offers a 2yr fixed rate at 3.5% with £99 in fees.

So which remortgage ‘buy to let’ interest rates offers the most savings?

For a ‘buy to let’ remortgage of £105,000:

Lender A 2 yr fixed rate at 3% Total Cost
105k + 1k fees 265 pm approx. £7,360
Lender B 2 yr fixed rate at 3.5% Total Cost
105k + 99 fee 307 pm £7,467

Savings made by taking the lower rate with higher fee = £107

The best deal over the term depends on the tipping point

The “tipping point” is the point at which the size of the loan makes more sense to take a different deal. So, in this example, if the mortgage was much under £105k then it will most likely be best to take the mortgage with lower fees.

Some lenders even offer ‘buy to let’ remortgage with no fees, where the savings at lower loan amounts can be even more substantial.

When is it a good idea to pay a fee?

Generally, as the loan amount becomes higher, the savings made with the lower rate and higher fee increase dramatically.

Hypothetical Example

For a buy to let remortgage of £200,000:

Lender A 3% rate Total Cost
200k +1k fees 503 pm £13,072
Lender B 3.5% rate Total cost
200k + 99 fee 584 pm £14,115

Savings made by taking the lower rate with higher fee = £1,043

As you can see, finding the best buy to let remortgage broker to take care of your remortgage for is crucial. Otherwise it could end up costing you thousands more than it needs to.

Talk to an expert buy to let remortgage advisor today

The advisors we work with are experts in this field and can help you get the best possible deal on a ‘buy to let’ remortgage.

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 23rd November 2018
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FCA disclaimer

The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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