Buy to Let Remortgage

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Your home may be repossessed if you do not keep up repayments on your mortgage

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Buy to Let Remortgage
Buy to Let Remortgage

Buy to Let Remortgage

Jon Porter and Julian Nicholls explain the process of remortgaging a Buy to Let.

Can you remortgage on a Buy to Let? How does it work?

Yes you can remortgage a Buy to Let, and how it works will depend firstly on what you want to achieve. You might be remortgaging to replace your current mortgage – to move to a different lender for a better deal, perhaps.

Or, you might own a Buy to Let with no mortgage on it, but you want to raise money on it to use for something else. It could be another property purchase or to make improvements on this or another property. These are all acceptable purposes.

It’s very similar to remortgaging a residential property. You’ll be assessed for affordability, and the lender will also want to assess the property itself. As well as checking that it is acceptable security for the loan, the lender will quantify the rental income and see whether the property is let at the moment.

How rental income compares to the potential mortgage payment is very important. Some lenders will assess affordability purely based on that difference between the rental income and the mortgage payment.

Some will also allow you to bring in an element of earned income. This is known as Top Slicing – it sounds like something painful or medical! But it can be helpful to bring earned income in as well as the rental income to boost the loan amount.

So the process isn’t greatly different to a residential remortgage but there are just a few more boxes to tick and a few more checks that a lender will do.

How do I remortgage a Buy to Let – what is the process?

As we said before it is very similar to a residential remortgage. The key factor is the rental income – that determines the level of borrowing.

The process again is very simple. You will need evidence of what you’re renting the property out for, the tenancy agreements and the income coming in. A lot of the lenders will want to see your tax overview and tax calculations to understand the profit of the rental – these are key areas in how it all works.

Can I be refused a Buy to Let mortgage?

Yes, that can happen. It could be that your income is not acceptable to the lender or that there are aspects of your credit history that the lender isn’t happy with. They might be happy with you but not with the property or the nature of the tenancy.

Different tenancy types are possible. Recently more people have been changing over from a standard assured shorthold tenancy for six or 12 months to more short-term lettings or even holiday lettings. Some lenders won’t allow that and customers may find that if they want to make a change to their mortgage their existing lender will refuse.

There are specialist lenders out there that will accept holiday lets or even Airbnb lettings. Student lets are also popular. A mortgage broker is invaluable in finding a lender with the right criteria in affordability, acceptability of the security and the type of letting that the client’s going to be doing. There’s usually a solution out there for most people.

How long does it take to remortgage a Buy to Let?

Only marginally longer than it takes me to answer one of your questions! It takes about four to eight weeks but again it depends. Valuations can take time to get organised. Different lenders have different underwriting criteria that can take longer and there are varying levels of automation used in making the lending decision. So allow eight weeks to get it all approved and completed.

What costs are involved with a Buy to Let mortgage?

Fees are slightly different to residential. They can be a little bit more costly. Some lenders set their arrangement fees at a percentage of the loan. Alternatively, standard fees are around £1,000.

When remortgaging, some lenders will offer free legals – free solicitors for a straightforward remortgage – and free valuation. But with Buy to Let not everyone does that. Some may offer cash back, some might not offer free valuation so they are a little bit different there.

What are the benefits of remortgaging a Buy to Let property?

A big pro is that you can release capital – this is the key thing. That can help grow your portfolio. You can pull funds out of the property to buy your next Buy to Let. I’ve also got clients that use a remortgage to enhance the property – releasing a bit of value to put in a new kitchen or bathroom, for example.

Or you might just want to secure a rate. Not necessarily a fixed rate, but a new rate with the lender, rather than sit on their standard variable rate. You might get a new product to secure a good mortgage rate for a period of time.

Are there any negatives to consider?

If customers have the opportunity to borrow against their own home, that’s usually cheaper than against a Buy to Let, because mortgage rates are higher. Arrangement fees are going to be high because often they are calculated as a percentage of the amount you’re borrowing.

Plus, a lot of people want to have flexibility about how they let a property. They may decide to sell it. With a mortgage secured on the property you are going to have to dance to your lender’s tune and follow the conditions of your mortgage. If you’re in a fixed rate you might need to keep hold of that property for that period. So it depends on your circumstances as to whether Buy to Let mortgaging is the right way to go.

There’s a common perception that it’s hard to get a mortgage if you’re self employed – but that’s not necessarily the case. People think it’s hard to get a Buy to Let mortgage or remortgage, or that you can’t borrow extra on a Buy to Let property. But you absolutely can and there are options out there for most people.

What else should we consider with a Buy to Let remortgage?

The final thing to be aware of is regarding the type of property that you’re remortgaging, and specifically the energy performance (EPC) rating. The EPC rating on individual properties is key for Buy to Let. That needs to be an E rating or above at the moment and is due to change in a few years’ time.

I’ve just had a client that wanted to remortgage – a fairly small mortgage on a property they’ve had for a long while. They wanted to do some capital raising but the property had an F rating. They had to change a few things to get a better energy performance rating on the property.

Lenders do check to make sure that it is E and above because that’s the required standard from the government.

Again, a mortgage broker will help you with this. We know all the Buy to Let lenders out there. You might not have used a mortgage broker before – you may have gone to your bank for the mortgage on your own home. But Buy to Let mortgages are not commonly available on the high street and many lenders will only sell via brokers.

We have the expertise to help you with Buy to Let so come time to come into a mortgage broker. We’ve got the experience, access to the deals and the knowledge to help.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Think carefully before securing other debts against your home.

Your home may be repossessed if you do not keep up repayments on your mortgage

Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority