The full guide to buy to let remortgages

Categories: buy to let mortgages | first time landlords | guides

A buy to let remortgage is the process of switching from your old mortgage deal to a new one. If you meet all of the required criteria, you can either remortgage with your current lender, or switch to a new deal offered by a different lender, depending on which is more beneficial for you.

The time to investigate remortgaging is 3-6 months prior to the expiry date of the ‘deal period’ of your existing mortgage. This is because mortgage offers can be secured this far in advance.

It is a great time to explore available deals with the aim of potentially saving money on monthly payments, free up equity for future investments, or adjust the terms of a new product if your needs have changed.

How does a remortgage work on a buy to let?

A remortgage is the process of transitioning from an existing mortgage to a new deal by utilising the same property as security.

The reason individuals remortgage buy to let property depends on each borrower, but the main purposes are to find a new deal, rather than revert to the lender’s Standard Variable Rate (SVR), or raise funds from capital in the property for further investment.

In general:

• BTL remortgage rates are typically higher than residential mortgage interest rates, but comparable with BTL purchase rates.
• The rent from your property must be higher than your monthly mortgage payment, for a buy to let remortgage deal to be considered affordable to you.
• Lower mortgage interest rates are typically available to those people putting down higher deposit amounts and who have a good credit score and consistent bill payment history.

The amount that you can borrow typically depends on your rental income, which will determine what level of monthly mortgage payment will be affordable to you.

How soon can you remortgage a buy to let?

You should remortgage your buy to let, or at least begin the process, up to half a year before your initial rate period is due to end. The majority of lenders will allow you to secure a deal around 3-6 months before the intended start date of the new mortgage.

• If mortgage interest rates are trending down, it may be beneficial for you to hold out and look further for a better deal closer to your renewal date.
• If mortgage interest rates are trending up, it may benefit you to secure a rate as soon as possible.

Our specialist broker team will be able to tell you what is happening in the marketplace, as they are looking at buy to let remortgage rates and available deals every day.

A broker will also know if other factors are at play in terms of lender behaviour, for example:

• A lender who has a lot of new business coming in, may increase their rates to stem the flow
• A lender looking to increase new business may reduce rates, to encourage more new business
• At year end, lenders who have not met targets may reduce rates, to encourage new business
• Lenders may change their criteria to accommodate different sorts of business

Speak to one of our expert advisors about your investment plans, request a call-back, talk to an advisor on our live chat facility, or call us on the freephone number at the top of this page.

Buy to let remortgage criteria

The criteria is essentially no different from purchase deals. Rates are typically similar whether you are purchasing or remortgaging.

The only difference you may find between purchase or remortgage deals, is that lenders sometimes offer ‘fee assisted legals’ – this is where the base conveyancing work associated with your remortgage is paid for by the lender.

‘Rental coverage’ is the amount your monthly rental income must exceed the mortgage payment by to be affordable. This is a requirement of a remortgage just as much as when you buy a property.

The rental coverage amount is dependent on whether you pay higher, additional, or basic rate income tax.

Additionally, lenders might require the borrower to have a minimum salary of £20,000-£25,000 per year, however there are many lenders who have no minimum personal income requirement.

Switching to a buy to let mortgage

Switching is quite common, where you remortgage from residential to buy to let. In the industry, this process is called “Let to buy”. This is often because you are letting a property in order to buy another and involves raising capital for a deposit for an onward property purchase.

Reasons for switching to a buy to let mortgage include:

• Moving to a different property
• Having an empty house that is under a residential mortgage that you would like to rent out
• Inheriting a property you don’t want to live in

If you want to temporarily rent out your former home, you can ask for ‘consent to let’ from your existing residential mortgage provider. If they allow this, they will usually increase the mortgage interest rate they charge you.

You may choose switching to a buy to let mortgage instead, which could be advantageous if you can get a cheaper rate, and/or it would allow you to switch to interest-only payments, where typically residential mortgages are taken on a capital repayment basis.

If you move from capital repayment to interest-only, on a like for like basis the monthly payment would be lower – but you won’t own the property at the end of the term.

Remortgaging buy to let property into a limited company

When you remortgage buy to let property, you can change the application from an individual basis to an application via a limited company or SPV (Special Purpose Vehicle), if you want to. Professional tax and financial advice may be critical to a decision to do this.

It is important to be aware that remortgaging a buy to let via a limited company, where it was previously mortgaged in your own name, essentially means you are ‘selling’ the property to the limited company – because the legal entity that owns the property changes. A key implication of this is that Stamp Duty Land Tax is payable.

It is the same process as any other buy to let remortgage, but it describes a scenario where a company owns the property, rather than an individual.

Limited company rates tend to be higher than products for individuals, as they sit within a more specialist area of lending.

Whilst not all buy to let lenders offer limited company remortgage products, there is a large range of lenders who do, so the number of products available is very diverse.

Landlords often ask the following about setting up limited companies for buy to let:

• Does the limited company have to be set up solely for buy to let investment? No, you can invest through a trading limited company, but there are fewer mortgage options if you do.
• Does the limited company have to have income from buy to let property only? No, see above.
• How quickly can you set up a limited company? Setting up a limited company for property investment can be done very quickly.

A limited company set up for a specific purpose is a Special Purpose Vehicle (SPV).

Lenders who offer limited company buy to let remortgage products do not require the company to have any history to it whatsoever. So, if it had been set up the day before discussing a mortgage that presents no issues.

You should do is ensure you have set up your company with the correct Standard Industrial Classification (SIC code) to demonstrate it is for property investment.

Standard Industrial Classification codes are a system that tells Companies House what the company does.

When establishing a company, you must choose at least one SIC code (up to four). There are 4 SIC codes that are commonly used by buy to let limited companies:

• 68100 – Buying and selling of own real estate
• 68209 – Other letting and operating of own or leased real estate
• 68201 – Renting and operating of housing association real estate
• 68320 – Management of real estate

If you are uncertain on how to set up a limited company, you should take professional legal and tax advice.

Can I remortgage my buy to let to release equity?

Remortgaging a buy to let to release equity from it, for further investment or home improvements, such as kitchen refurbishment, renovation or loft conversion is very common. It is often a core step in a landlords buy to let investment strategy. As such, this is something any broker can help you do.

Naturally, there would need to be equity in the property in order to do this.

If you are looking at undertaking improvements on the security property, it is of benefit not only to you as the landlord, but also to the lender, as it enhances the property they have lending secured against.

How to remortgage buy to let property

To remortgage buy to let property, first, you have to find out what loan to value (LTV) you require. For example, if you are looking to remortgage a property that is worth £200,000, and you need to borrow £150,000, then your LTV is 75%.

Landlords who are looking for a higher LTV (e.g. 80%), tend to pay higher mortgage interest rates. There are typically more lenders offering a wider range of mortgages and rates for people who seek a lower LTV deals (e.g. 60-75%). This is because there is less risk associated with lower LTV deals.

Finding the best buy to let remortgage rate

Our buy to let mortgage calculator will show you the latest buy to let remortgage rates available, it is updated twice daily.

Rates can change quickly; you could bookmark the page in your browser, so you can come back and re-check the deals available.

Many borrowers think that the best buy to let remortgage deals are those with the lowest rate. But, this is not necessarily always the case.

Some deals with low mortgage interest rates have high upfront fees, so over the initial period of the deal it may not offer the most cost effective solution.

The best buy to let remortgage deal you can secure, if lowest monthly payments are a priority, requires factoring in all costs associated with the product.

In order to get the best possible deal, it is strongly recommended that you check your credit report before applying for a remortgage, to ensure that your credit score is in good shape. Some tips to maintain a good credit score are:

• Do not miss payment deadlines for bills
• Register on the electoral poll
• Close your unused credit cards

All of which helps provide lenders with evidence that you will be able to afford mortgage payments.

A specialist buy to let broker will have access to deals from across the market. This offers you choice of deal. They can then calculate the full cost of that deal against other products in the market, to find you the best possible outcome from the range of deals in front of them.

Different types of rate

There are two main types of buy to let remortgage rates (the same as with a purchase): fixed and variable. You may also see rates described as discount and tracker, these are types of variable rate.

• Fixed rates - you pay the same amount per month over the initial rate period, which is commonly two or five years. The biggest benefit of fixed interest rates is that you know what you are paying for an extended period of time, which allows you to plan ahead.
  
  If mortgage rates go up, you are protected from your mortgage costs increasing, whilst you are within the initial rate period timeframe.
  
  If rates go down, you will not benefit from a reduction in mortgage costs during the initial rate period, because you are on a fixed rate.
  
  
• Variable rates – the amount you pay may vary, because variable rates are calculated from another rate of charge that is subject to change. There are sub-categories of variable rate:

• Discounted rate – is calculated based on a discount on the lender’s Standard Variable Rate (SVR). For example, a lender might offer a 1.5% discount on their SVR of 5%. This means that the payable rate would be 3.5%. If the lender’s SVR changes, either by going up or down, your payable rate would change.
• Tracker rate – is calculated based on an external rate, usually the Bank of England’s Base Rate, plus a certain percentage on top. Some tracker deals have a minimum interest rate, called a “collar” or “floor”. It means that your interest rate will never drop below it, even if the rate it tracks drops below that the initial amount set.
• Managed variable rates – is a rate calculated and managed by the lender and is subject to change.

Reversion rate – after the initial rate period with the lender ends, you will be moved onto their reversion rate, which is usually their Standard Variable Rate (SVR) (a rate calculated by the lender). You will stay on this rate for as long as your mortgage lasts or until you move onto a new mortgage product.

Your lender will decide if their reversion or SVR will increase or decrease, based on Bank of England’s Base Rate movements. Since it is usually a more expensive option, it is sensible to find an alternative buy to let remortgage rate / product.

Submitting an application

During the application process, you will have to go through an affordability assessment and credit check – the same process as you will have gone through when you first took out your mortgage, so be prepared.

Starting the remortgage process before your current deal ends gives you plenty of time to evaluate your options and gather the information you will need.

When you decide upon the most suitable option, you will have to submit your buy to let mortgage application. If you are working with a broker, they will do this for you.

The average duration from a buy to let remortgage application being submitted to completion, is 6-8 weeks (purchases take longer).

FAQs