Buy to Let Remortgage
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Buy to Let Remortgage
Adam Messer is back to explain the process of remortgaging a Buy to Let property.
Can you remortgage on a Buy to Let? Why would you do this?
You absolutely can remortgage a Buy to Let and you would normally do this in search of the best deal.
When you take your initial mortgage, whether it’s residential or Buy to Let, you tend to have it for a certain period. It might be fixed for two, three or five years. Once that fixed period ends, if you don’t do anything at all, you will go on to your lender’s variable rate – which is normally sky high. That’s something to be avoided at all costs, unless you’ve got plans to sell or move.
So what we will do before that happens, is line up a remortgage. A remortgage just means swapping from one lender to the next. We’ll usually do that to find the best deal – because if you stay with the same lender, generally speaking you don’t get as good a deal as you would as a new customer elsewhere.
You might also do other things, like change the term, borrow more or repay some of the debt in a lump sum. All those things can be done at the same time as remortgaging.
How do I remortgage my Buy to Let? What’s the process?
The process is the same as on a residential mortgage. We start by looking at affordability. Affordability is a bit different on a Buy to Let because it doesn’t matter so much what you earn. Some lenders set a minimum income but others don’t.
We’re mostly looking at the rental income for the property. Lenders do a calculation called a stress test, where the rent needs to cover the mortgage by a certain margin. That’s got harder to cover in recent years, but it has relaxed a little bit now.
You might still find that you can’t quite borrow as much as you previously could on a Buy to Let. So the rent needs to cover the mortgage by a certain margin, and that margin needs to be more if you’re a higher rate taxpayer. You’re going to pay more tax on it and the lender factors that in.
If you’re a basic rate taxpayer or you don’t pay any tax at all in your normal income, it’s going to be easier. Your affordability is better. So based on that affordability we will find the lender with the best rate for you.
We’ll do an application, the lender will do a valuation and assess any income documents and then a solicitor is involved in swapping lenders. The legal cost is sometimes covered by the lender, but It’s a fairly low cost process anyway.
The new lender releases the money to the solicitor, who pays off the old lender and everything is all sorted.
How long does it take to remortgage a Buy to Let?
Not that long. I generally say we can do a remortgage in a few weeks, depending on the lender, the time of year and how busy they are.
If a lender has the best rate for a while, they’re going to get lots of business and get quite busy. They could slip behind on their service standards. We find that different lenders come in and out of rates, depending on their service standards.
Four to six weeks is typical for a remortgage. We do tend to start the process six months in advance, because if rates go up we’ve already got your mortgage sorted. Your new mortgage offer can last six months. Then, if things change and rates come down we can still get you the new rate. So we get it ready and wait for a few months until your current mortgage ends.
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Can I be refused a Buy to Let remortgage?
Yes, you can. It’s likely to be due to adverse credit – that will affect Buy to Let mortgages in the same way as residential mortgages.
Lenders know that if you fall on hard times, you’re probably more likely to not pay your Buy to Let mortgage than your residential mortgage. So they do look at your credit score and payment history.
If you are refused a Buy to Let mortgage, it just means we need to go to a more specialist lender and you will potentially have to pay higher rates. But it’s rare not to get a mortgage at all.
Whatever your situation – adverse credit, a change to your income, or a reduction in your rent – you can always stay with your current lender. You just choose a new rate.
That’s always an option.
Could I be refused because of stress tests?
Yes, you could also come into difficulty with that rental calculation. The lenders are more stringent now and the rent has to cover the mortgage by a much bigger margin than before.
If you took a five year fixed rate five years ago, with a 25% deposit, you might find now that you don’t quite get enough rent. Especially if you’ve not put it up much.
You might have had the same tenant for a few years, and if the rent hasn’t changed a lot you might struggle to borrow what you need on the Buy to Let.
Some lenders will value the property with the rental income at current market value. Even if you’re not charging that to your tenants, lenders will value it at what you could charge. They have to assume that if you don’t pay the mortgage and they repossess it, they could let it out for market rent.
What costs are involved when remortgaging a Buy to Let? Does this include stamp duty?
You do need a solicitor, although some lenders will cover the cost of that. Other lenders won’t on a Buy on Let. I use solicitors all the time for remortgages and their basic fee for Buy to Let is about £300, so it’s a fairly low cost thing.
Some lenders may charge a valuation fee as well. That may be free depending on the lender and the product. The cost is linked to how much the property is worth. It could be free, or range up to a few hundred pounds. To remortgage a more commercial property like a House in Multiple Occupancy (HMO) it might be a couple of thousand pounds.
We tend to look at the most cost effective rate going forward, and if you’re paying for valuation and solicitors, the chances are the rate is a bit lower. If they are free, the lender will want to recoup those costs.
We do charge a fee, like most brokers. It’s typically £500 for an average remortgage. And on stamp duty, no, you only have to pay stamp duty if you are adding or removing someone from that mortgage.
Adding someone to the mortgage who is putting money in may incur stamp duty. But if you’re just remortgaging from one lender to another, even if you’re borrowing more, there’s no stamp duty to pay. You’ve already paid when you bought the property so you don’t need to pay more stamp duty on a remortgage.
What are the benefits of remortgaging a Buy to Let property?
It’s all about getting the best deal. At the moment Buy to Let is a bit less appealing. There’s less profit involved for landlords so it’s more important than ever to find the best deal for you. You need to find the product that’s going to cost you the least over the next couple of years. [podcast recorded in March 2024]
How can a mortgage broker help if somebody is looking to remortgage their Buy to Let property?
I’m passionate about this – with Buy to Let, you can’t just compare the meerkat. It’s not just about the lowest rate, because of all these other things we’ve talked about – stress tests and income ratios and all that stuff.
We know the criteria and the lenders to go to. We have instant access to calculators and rents to make sure it all fits. So you do need an expert, unless you’re just going to stay with the same lender – which is generally going to be a mistake.
So if you’re thinking about doing that, at least speak to a broker and have a look around first. Some lenders are terrible for it. You might be with them for a specific reason and they know they’ve got you – so their existing customer deals are awful.
Nowadays there are lots more lenders that do different things, so there’s choice where perhaps there wasn’t a few years ago. Lenders know you probably won’t bother looking around – so speak to a broker and make sure you go in search of the best deal.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBTS SECURED ON IT.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.
Useful Links
- What are my Remortgage Options?
- Remortgaging For Home Improvements
- Remortgage to Release Equity
- Remortgage to Repay Help To Buy
- Remortgage When Self – Employed
- Interest Only Remortgage
- Buy to Let Remortgage
- Product Transfer Mortgage
- Remortgage of an Unencumbered Property
- Remortgage to Pay Off Credit Card Debt
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