Buy to Let Remortgage
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Neezam Romjon from Rebus explains the process of remortgaging Buy to Let properties.
Can you remortgage on a Buy to Let? How does it work?
Yes – it’s very similar to a remortgage on a residential property. If you’ve got a Buy to Let mortgage, you’re probably on a fixed or variable rate for a certain period of time. You might be on a two-year fixed rate or a five-year discounted variable rate.
When you get to the end of that deal, the lender will revert you to their Standard Variable Rate. That’s a rate that the bank controls and it’s generally much higher than your current rate.
Instead, you can remortgage and switch to another deal – either with the same lender or a new one. If you’re on a fixed rate deal and switch before it ends, you’d usually incur an early repayment charge – which is usually a percentage of the balance of the mortgage. It can be quite a lot of money.
So we would line up another lender for you for the end of your deal. You apply for the new mortgage funds to match what you owe your current lender. There’ll be a bit of legal work where your solicitors will request the funds for your new mortgage, pay off your current mortgage, close that down so that the new mortgage takes over.
Why remortgage your Buy to Let?
A lot of people often don’t want to go through the work of a remortgage, or think that they can’t get a new deal for whatever reason. But we’re almost always going to find you a better deal than the standard variable rate, even staying with your current lender.
Your mortgage term is generally 20-25 years, so if you’re paying a higher rate then you need to, it all adds up. So in terms of why remortgage, it’s to make sure you’re not paying any more than you need to.
Can I be refused a Buy to Let remortgage?
When you apply for a remortgage, the lender is obliged to carry out an affordability assessment in exactly the same way as if you were applying to buy the property. If you’re switching to a new lender, you still need to ensure that you meet their lending criteria. You need to make sure the lender is happy to lend against the property and give you the amount you need.
Lenders look at affordability in different ways. If you’re applying with a lender where you don’t tick all their boxes they’re not going to lend you what you need. It might be something simple – they won’t lend on a flat, for example, or you might not meet their credit requirements.
So yes, you can be refused a Buy to Let mortgage. But if you’re using a broker we’ll guide you through and make sure that we’re applying with a suitable lender.
How long does it take to remortgage a Buy to Let?
It depends on your situation. Is the property in your personal name or a limited company name? Is it the only property you own or are you a portfolio landlord? That will affect which lender we choose.
If your situation is quite straightforward, and you’re not a portfolio landlord where there would be a more thorough assessment, it’s quite a quick process. We aim to get a mortgage agreed and offered within three to four weeks of applying. The remainder of the process is getting a small amount of legal work done. That can vary depending on whether it’s a freehold or a leasehold property.
We suggest allowing around 12 weeks for a remortgage from start to finish. When we know our clients are coming to the end of their initial rate we’ll contact them around four months ahead, giving us time to prepare, gather all the paperwork and apply. That way when your current deal ends, you switch over to your new rate the very next day.
What costs are involved with remortgaging a Buy to Let? Do you have to pay stamp duty?
One of the things that puts people off remortgaging is uncertainty about the cost. But it’s well worth it. Generally speaking you’ll have a lender arrangement fee or product fee. You can pay that upfront or consolidate it onto the mortgage itself.
The bank will want to carry out a valuation of the property to make sure they’re happy to lend against it. So there may be a valuation fee – but some lenders pay for that themselves. The amount varies depending on the value of the property, where you’re buying, who the lender is and more – it’s normally a couple of hundred pounds.
The other fee is the legal fee. Legal work includes updating the title deeds with the Land Registry and checking you comply with the lender’s conditions in the mortgage offer. Usually it will be a few hundred pounds depending who you go with.
The good news is some banks and building societies will cover that cost for you if you use their solicitors. Alternatively, some will offer a ‘cashback incentive’ where they pay you a sum towards the legal fees. It’s a win-win as you can choose your own solicitor.
In terms of stamp duty, on a straightforward remortgage where you’re changing anyone on the deeds, there won’t be any stamp duty liability.
What are the benefits of remortgaging a Buy to Let property?
The big one is cost. Remortgaging means you’re not paying a higher interest rate, so you’re not paying more in monthly payments than you really need to.
If you own a Buy to Let property, it’s likely you’ve bought it as an investment – so you want to maximise your profitability. Paying more interest on the mortgage than you need to is going to eat into that profit, both short term and long term.
There’s also the opportunity to revisit how much you want to borrow. A lot of landlords want to grow their portfolios. Something called gearing is where you can release some equity to raise funds to buy another Buy to Let property. We work with a lot of landlords who are very successful at that.
Remortgaging alone can be difficult. Buy to Let mortgage criteria is very diverse with each lender and very strict. With Buy to Let affordability is generally driven by the rental income, but lots of other things need to be taken into account. You may need to meet a minimum level of personal income.
If you earn a salary of £20,000 and tick every other criteria box – there’s nothing wrong with the property and it meets affordability, lots of lenders still won’t accept you because you don’t meet the minimum income level.
Whether you’re looking to grow a portfolio or make long term profit, speak with a broker. Strike up a good relationship with someone you trust and let us do all the work for you.
Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.