How Just Mortgage Brokers Can Help You
Making your buy-to-let business as self-financing as possible involves two things: maximising your rental income, and minimising your mortgage commitments. When buying a new property to let, trying to get the best possible mortgage deal is a given. But equally important is to keep the mortgage on the best deal at any given time; for many buy-to-let landlords, that can mean periodically remortgaging the property to get a better deal.
What is a Buy to let remortgage?
A Buy to Let Remortgage works in a similar way to a traditional remortgage on a residential property. When you originally take a mortgage secured on a property it will more often than not have a rate which will be valid for a set time period, usually 2, 3 or 5 years.
After the initial time period for the rate expires the mortgage lender will usually transfer the mortgage to a higher rate. An ideal time to do a Buy to Let Remortgage is usually a few months before the rate is due to increase. The idea is to start looking at alternative lenders that will be willing take on the mortgage and offer you a better rate than what your current Buy to Let mortgage lender will increase your rate to.
So, to summarise, a Buy to Let Remortgage is the process and completion of looking at alternative lenders to take on your current Buy to Let mortgage with a view of offering you a better rate than you currently have or about to increase to.
Remortgaging my buy to let
The attraction of remortgaging to a new lender at a lower interest rate is obvious; the savings that you make turn into clear buy-to-let profit. However, it is important to consider more than just the interest rate when considering a Buy to Let Remortgage.
As with any financial decision-making when it comes to buy to let, they key is to consider all the costs involved when weighing up whether remortgaging is the right move. There will usually be a standard exit fee from your current lender, and if you are within the tie-in period of an existing mortgage product, early repayment charges (which could be in the range of thousands of pounds) will apply. Check your mortgage offer or annual mortgage statement for details of any product-specific repayment fees.
There could also be other fees associated with taking out a new mortgage, including arrangement fees, valuation fees and legal costs. Ensure that you take the total costs of remortgaging into account when comparing the savings you could make on the new mortgage.
Finally, ensure that the terms of the new mortgage are to your satisfaction. Does it tie you in with early repayment charges, or are you free to remortgage again at a later date? Is it really the type of mortgage product you want? For example, do not let an attractive tracker rate product reel you in if you would really rather have the stability of a slightly higher fixed rate.
Should i remortgage my buy to let?
One of the main reasons for most when remortgaging a Buy to Let property is to keep your mortgage on the best possible mortgage product at any given time. For many landlords, the best product is the one with the most cost effective interest rate. For a buy-to-let business to succeed – especially in the light of forthcoming tax changes relating to mortgage interest – you want the profit margin on the property to be as high as possible, and getting the best possible mortgage rate is a core strategy in achieving this.
At the time of writing (September 2017) the Bank of England base rate has been at an all-time low of 0.25% since August 2016. The Bank has held the rate low since the financial crisis of 2008 – but many analysts believe the base rate could rise sooner than they previously forecast. For many landlords, it could make good business sense to remortgage to secure the best rate possible before a rate rise increases prices across the mortgage market.
Some landlords choose to remortgage for reasons other than to secure a better interest rate. If a property has experienced strong house-price growth and has plenty of equity, you might want to remortgage and take a further advance to release cash, for example to expand your portfolio or renovate a property. For others, remortgaging represents an opportunity to change some other aspect of the loan, for example to switch from a variable-rate product to a fixed-rate mortgage.
Why shouldn’t I remortgage my Buy to Let property?
As with any financial transaction, it is important to make sure the transaction will benefit you in some way. While remortgaging can be a great way to save money it is important to understand why and when you shouldn’t remortgage your Buy to Let property.
- You may still be tied in to a product rate with your current lender. Remortgaging will effectively mean you may get a better rate but to break out of the product tie-in with your current lender could be costly and therefore negate any savings you could make.
- Any set up costs need to also be taken into account especially if you do not have a large outstanding balance. Quite often, when looking at alternative lenders you may need to pay lender arrangement fees, survey fees and in some instances, legal fees. All of these fees should be taken into account before deciding whether or not it is beneficial to still complete a Buy to Let remortgage transaction.
At Just Mortgage Brokers our experienced Mortgage Advisers can look into the finer details of your Buy to Let remortgage and help you understand if it is the right thing for you to do.
what is the stress test for buy to let mortgages?
When you last applied for a Buy to Let mortgage, the lender likely assessed affordability by checking that the projected rental income was at least 125% of the mortgage interest payments. However, new lending guidelines set down by the Prudential Regulation Authority (PRA) in early 2017 mean that lenders must now go further to ensure that Buy to Let mortgage applicants will be able to afford mortgage repayments even in the event of an interest rate increase. Expect a more stringent rent-to-interest cover requirement in the order of 145%, or as high as 170% for Houses in Multiple Occupation (HMOs).
For portfolio landlords – defined by the PRA as those with four or more mortgaged properties, the underwriting requirements for lenders are even tougher. Buy to Let remortgage applicants with a portfolio of properties should be prepared for lenders to review their entire portfolio and cashflow – including other sources of income – in order to assess affordability.
What is the criteria to remortgage my Buy to Let?
The criteria to remortgage a Buy to Let property are very much the same as a mortgage to purchase a Buy to Let property. There may be a few anomalies amongst lenders with differentiating criteria but as a whole the following is a good indication of the criteria lenders use to assess a Buy to Let Remortgage application.
- Your age is important. The majority of Buy to Let mortgage lenders will usually lend to those aged 21 over and below 75. There are however a few lenders on the market that will lend to anyone aged 18 or over and some will even have no cap on the maximum age at the time of application.
- The monthly rental income will be taken into account in all instances. Lenders will use this against their internal lending matrix to determine how much they are willing to lend on a property.
- Your personal income may be taken into account. While some lenders may not require you to have any personal income above your rental income, others may require you to have a personal income of £15,000-£25,000. As this is a specialist area of lending, some lenders may be willing to take into account the income you receive from being self-employed as a portfolio landlord. This could be either as a Sole Trader or Limited Company.
- The amount of Equity available in the property after your proposed loan is taken out is also important. Typically, Buy to Let lenders will require at least 25% equity in your property, however there are a number of lenders that will lend on a Buy to Let property with as little as 15% equity left in the property after your proposed loan is taken out.
- Your experience as a landlord is usually assessed. If you have been a landlord for a number of years then lenders may look at you more favourably as you may be classed as a lower risk for lending purposes. On the other side of the spectrum, if you have just one Buy to Let property then the lending criteria could be more restricted. This is not to say you couldn’t still get a very competitive interest rate.
- The type of property you want to take a Buy to Let Remortgage on is also important as some lenders will shy away from lending on properties with non-standard construction. Along with this, flats and apartments may have different restrictions and some lenders may require a larger amount of equity.
The criteria for a Buy to Let Remortgage can differ from lender to lender. It is important to speak to an experienced Mortgage Adviser who can explain the criteria in detail and ultimately secure you the best Buy to Let Remortgage rate for your personal circumstance.
What are the fees to remortgage my Buy to Let property?
When remortgaging your Buy to Let property, there may be a number of fees that have to be taken into account before deciding if it is viable and cost effective.
- Arrangement Fees to the lender. Lenders will usually offer their most competitive rates if you are willing to pay an Arrangement Fee. These fees can range from being a fixed amount or a percentage of the loan. In most cases a lender will allow you to add this on top of your mortgage borrowing so you do not have to pay it upfront. It should be noted though, that if an Arrangement Fee is added to your borrowing then this will likely remain for the term of your mortgage and thus you will pay interest on it, usually at the same rate as you Buy to Let Remortgage.
- Application or Product Fees. These are similar to Arrangement Fees. The difference here is that a lender will usually want these fees upfront and in most instances, if your Buy to Let Remortgage does not go through or complete then these fees are usually non-refundable.
- Valuation or Survey Fee. Part of assessing your eligibility to borrow for a Buy to Let Remortgage is the actual assessment of the property you are offering as security. A lender will assess the property’s value, condition and property type to determine if and how much to lend. While some lenders may offer this service free of charge, other lenders will charge you for the privilege of a Surveyor assessing your property on behalf of the lender.
- Legal Fees. Some lenders will provide a legal representative to act on their behalf to complete the transaction for your Buy to Let Remortgage. Other lenders will insist that you pay for this service.
- Mortgage Broker Fees. When remortgaging a Buy to Let property it is vitally important to get the correct advice and also to try and secure the best Buy to Let mortgage rate for your circumstance. Mortgage Brokers are essential to this process and will usually charge a broker fee for their service.
With all the different fees that could become payable, it is important to try and get professional help to ensure you are not paying over the odds for a Buy to Let Remortgage product and the over ‘deal’ is financially viable.
Best Buy to Let remortgage rates
Trying to find the best Buy to Let Remortgage rate can be quite time consuming. When looking at a new lender there is quite a lot of technical information that needs to be analysed before a lender will confirm if the loan amount you’re after is viable. Lenders will normally start by looking at how much equity you have in the property, achievable market rental rates, property type and your personal income along with your length of history as a private landlord. Even with all the information above, different lenders will lend you varying amounts of money and some will outright decline to lend. That is why it is vitally important to speak to an experienced Buy to Let Mortgage Adviser to help you navigate through what is effectively a financial minefield.
Some of the rates that our Advisers can source are truly exclusive and only available through brokers or in some instances, just through the network that Just Mortgage Brokers belong to.
Best Buy to Let remortgage lenders
With the variety of lenders available on the market today, you could be forgiven for being confused as to where to turn first to obtain the most suitable remortgage product for your Buy-to-Let property.
In many cases, the most suitable lender for your remortgage may in fact be your current lender – as they are already familiar with your property and yourself, there will be no need for additional underwriting and the process could be comparatively smooth. However, if your circumstances have changed since you first obtained your mortgage, your lender may not be willing to give you a remortgage plan – or it could be that your current lender’s rates are no longer the most competitive, in which case you may prefer to look elsewhere, depending on any possible penalties involved and the length of time left to run on your mortgage.
You can end up spending a lot of time researching the wide range of lenders in the market, checking online for tables showing the most favourable products and rates, but this will never give you the full story. It could be that the most suitable product for your remortgage is from a specialist lender who is only available through a broker and not on the high street or online, and therefore not on the radar of the ‘best buy’ tables.
The only way to truly identify the best Buy-to-Let remortgage lender for your particular circumstances is to talk over your situation, your aims and your requirements with an expert mortgage advisor. They have an in-depth knowledge of the entire mortgage market, and are liaising with providers of every kind on a daily basis. Once they understand what you want to achieve with your remortgage on a Buy-to-Let property, they’ll be able to recommend exactly which lenders to approach – both mainstream or specialist – and also which products are likely to be the right fit for you.
Buy to let remortgage advice
Getting the right Buy to Let mortgage advice is more important than finding the best rate. When most people think about getting a Buy to Let Mortgage, they will usually try and find the best rate available. Unfortunately, this could end up costing you a lot more in the long run. When sourcing a Buy to Let Mortgage it is important to take into account all the associated fees (hidden and upfront), the product type, your short and long term goals etc. Along with the costs, it is important to understand the lending criteria that lenders use to determine whether lend or not. While the high street lenders do have some Buy to Let products available, most lenders that specialise with Buy to Let Mortgages are available off the high street and usually via mortgage brokers like us.
If you are looking for a Buy to Let Mortgage or Remortgage then get in touch with one of our specialist Buy to Let Mortgage Advisers at Just Mortgage Brokers who will not only advise you on the most suitable lender and product, but could also end up saving you a small fortune in the long run.