For many customers, remortgaging a Buy-To-Let (BTL) property is straightforward, but for some, it is more difficult, particularly if things have changed dramatically since the first mortgage was taken out.
There are many BTL customers who can easily remortgage, but others may have more difficulties, especially if their previous mortgage has changed significantly.
The best BTL remortgage can depends on various key factors, which we run through in this article.
The Following Topics Are Covered:
Why Remortgage Your Buy to Let
If you need to raise some cash, it's an excellent way to get a more favourable interest rate or change the terms of your mortgage deal.
Remortgaging your BTL property is a great way to lower your monthly repayments and, therefore, the return on your investment.
Accelerated Finance has access to over 50 lenders, and can unlock the entire market and find the best deal for you.
How The Purpose of the Remortgage Impacts The Product You Qualify For
You may be eligible for different mortgage deals if you’re refinancing a buy to let investment property.
How you wish to use the equity you release or the deposit you save for property improvements or the acquisition of another property might be treated differently by each lender.
Below are some of the case studies of why an applicant may remortgage.
1. Releasing Equity
When you've owned a buy-to-let property for some time, you can release your equity, but some mortgage providers may have restrictions on
those kinds of arrangements.
How much capital you are able to release will rely on the situations, further listed below.
2. Remortgaging For A Deposit
If you're a landlord and want to expand your real estate portfolio, you can do so by borrowing money to purchase buy-to-let properties.
While Buy-To-Let Mortgages are relatively common, there are many regulations and rules that restrict landlords.
As a higher-rate taxpayer or a portfolio landlord (with four or more buy-to-let properties), a lender might prevent you from purchasing too many buy-to-let properties to reduce the risk associated with owning a larger number of properties.
A handful of lenders will accept an unlimited quantity of buy-to-let properties.
A portfolio of 4 buy-to-let properties is typical while some lenders will accept as many as 10.
3. Property Improvement
Many mortgage providers are fine to allow you to remortgage in order to free up equity for investing in your Buy-To-Let property. They will certainly be pleased with the new regulations, which are expected to improve the value of the house.
4. Debt Consolidation
Some lenders will restrict the debt consolidation loan’s LTV (Loan to Value) ratio if you want to remortgage. Although debt consolidation loans are risky, some lenders will provide them. You might want to consolidate your debts by releasing equity in your BTL property.
This can help lower the amount of money you spend each month by converting repayable unsecured debts into interest-only secured debts, you may be placing your home in jeopardy.
To avoid this situation, you must have a strong repayment strategy in place.
5. Buying Out A Partner
If you have a buy-to-let mortgage, you may withdraw equity to buy someone else out of the mortgage, or even out of another house entirely. It's likely you'll be able to obtain a buy-to-let mortgage with most lenders.
In order to purchase someone out of their mortgage, you would have to reapply for a buy-to-let mortgage. Even if you keep the same lender, you would require a fresh application so that the lender could conduct a new income valuation.
6. Commercial Purposes
A buy to let property may be remortgaged to capitalise on a commercial chance, for example a retail space or business venture. Some lenders can accept BTL remortgages if they are used for commercial or business purposes,
7. Switching To A Better Interest Rate
Rather than letting your BTL mortgage slip into your lender's SVR, you may want to remortgage to take advantage of the most advantageous buy-to-let remortgage deals on the market.
It makes sense to get the best deal on your mortgages by checking them regularly, particularly if you have fixed-rate mortgages that are set to expire.
Personal Name vs Limited Company
There are various special offers available through mortgage lenders if you're an individual or a limited company.
Individuals and small businesses can buy property through limited companies, especially if they have large portfolios. If you want to protect yourself from personal liability should things not go according to plan, limited company mortgages are ideal . Furthermore, company structures are treated differently from individual mortgages and have various tax benefits.
It is best to speak to a specialist tax adviser to find out more information on this.
How Loan to Value Impact Impacts The Best BTL Deals
The LTV a lender looks at depends on the amount you want to borrow and the equity you have in your home and can vary significantly depending on the lender.
If you have £200,000 of equity in a £250,000 property, you can borrow £100,000 over 25 years with an LTV of 40%. However, if you want to borrow £160,000, your LTV would be 65%. The LTV is directly correlated with the rate of interest.
Buy To Let Remortgages For People With Bad Credit
We’ve assisted with investment remortgages over the years for people with bad credit history.
This is a list of potential credit issues you may encounter as a borrower:
Poor Credit Rating
County Court Judgments (CCJs)
Individual Voluntary Arrangements (IVAs)
Debt Management Plans (DMPs)
Factors Affecting a Buy To Let Remortgage
1. Personal Income
The amount that a lender will lend you is determined by different standards. There are a few lenders that accept less than £25,000 a year in income if you are new to real estate investing. Other types of income lenders may consider are:
Lenders will also take your outgoings into account, and consider things like:
Debt repayments (car lease, credit cards etc)
Communication services (phones, internet etc)
Essentials (food, clothing etc)
2. Rental Income
The size and condition of the property, as well as its location, will determine how much rental income your buy-to-let venture generates. If a lender deems a buy-to-let mortgage to be affordable, it will be approved.
The affordability of the mortgage is balanced against your personal income, the expected rent, and the property's value.
A minimum rental of 125% of your annual mortgage payments is required by many lenders. To have a look at how much you can borrow based on your rental income, have a look at our buy to let calculator rental calculator
For instance, if you have a £200,000 mortgage and a 5.5% interest cover rate is applied, this brings your monthly interest payments to £916.66.
The equation is £200,000 x 5.5% = £11,000 / 12 months = £916.66
By factoring in the rate for the rental income of 125%, for the purposes of stress testing, this brings the real monthly costs to £1,145.83
3. Mortgage Interest
Previously, buy-to-let tax relief was quite attractive; now, landlords have been severely affected by the new tax rates implemented in 2017. Landlords were heavily hit by the new tax rates. Lenders require your rental income to cover not only the mortgage but also repairs, maintenance, agent fees, and mortgage interest.
Some lenders require that the rent covers up to 145% of the mortgage payment, in addition to the mortgage payment.
3. Type of Tenants
Some lenders look at the type of tenants occupying the property. Below are a few that will be wise to take precaution on:
Tenants on Benefits: Have a high risk, but are less likely to be considered a high risk is on disability benefits
Students: Risk here is the partying and potential damage to the property
HMOs (Houses in Multiple Occupation)- Would work if the clients are professionals
Sitting Tenants: Considered a barrier because due to the Rent Act of 1977, which gives the legal property for tenants to remain in the property and potentially have the right to a 'fair rent' below the market value of the property.
4. Property Type
The most standard property type that a lender is comfortable with is a standard brick and slate roofed home. Property types that are of non standard construction could be:
High Rise Buildings
Wooden framed homes
Metal Framed House
With the current market Buy To Let Rates predicted to keep rising, now might be a good time to remortgage and fix your rate if you are currently on a lenders standard variable rate. We pride ourselves on securing the best remortgage deals by analysing your requirements and researching the market on your behalf.
It's important to bear in mind all the costs involved in running a buy to let property business. Read further for Buy To Let Mortgage Tips
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties. Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract.
Please note that Accelerated Finance Limited and it's employees do not give financial advice or recommendations on any product.