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.
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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.
What to look for when remortgaging
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.
Expect tougher underwriting
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.
How a mortgage broker can help
At Just Mortgage Brokers we have many years of experience in helping buy-to-let landlords find the best remortgage products on the market. We are always up to date with the latest changes in buy-to-let mortgage regulation and underwriting and can help ensure you find both the mortgage product and the lender that are right for you.
Contact us today to discuss how we can help with your buy-to-let remortgage