How can landlords get a buy-to-let remortgage?

What is remortgaging?

Remortgaging is when you move from one mortgage to another. For example, you could be changing to a new product with the same lender or you might switch providers.

The reasons for remortgaging vary, but it’s usually because borrowers are looking for a better deal or their current agreement is ending.

Remortgaging is also a good way to raise money. Landlords can do this by taking out a new mortgage which includes the outstanding value on their previous mortgage, plus the value of the equity they want to release.

Many landlords have interest-only mortgages, so a buy-to-let remortgage could allow you to switch to a repayment product if you want to increase how much of the property you own.

The basics of remortgaging a buy-to-let property are similar to switching products on a residential mortgage. However, lenders will view your application differently as it’s a business interest.

What are the reasons for remortgaging a buy-to-let?

There are many reasons why landlords remortgage their buy-to-let properties, but usually it’s either to reduce costs or borrow extra cash for investment.

Here are further details on some of the key reasons why landlords remortgage.

Getting a better deal

As with residential homeowners, one of the most common reasons to remortgage a buy-to-let is to get a better deal and save money.

If you have a repayment mortgage, you can benefit from lowering your monthly repayments and your interest rate. Alternatively, landlords with interest-only mortgages can save money by securing a lower interest rate.

Portfolio expansion

Expanding your portfolio can be challenging due to the costs involved, but remortgaging is a great way of generating the extra cash you need to buy a property.

If you decide to remortgage for portfolio expansion, the lender will carry out a valuation of your existing properties to see how much equity you have and how much they can lend you.

Factors which could affect how much you could borrow include:

• whether you’re a higher rate taxpayer
• the size of your portfolio
• what type of product you want (full remortgage, portfolio mortgage or second charge)

Property improvements

You can remortgage your buy-to-let property to release equity for home improvements such as a new kitchen or loft conversion.

It’s likely that lenders will be keen to offer you a good deal if the improvements increase the value of your property. Not only will making improvements benefit you when you come to sell in the future, but they could help you to attract more tenants and generate higher rents in the short-term.

Equity release scheme

Alternatively, you may want to remortgage to access an equity release scheme to receive a tax-free loan against your buy-to-let property.

To do this, you’ll need to be over 55. It’s also worth noting that the equity release scheme options for buy-to-let properties are limited and the lending criteria could be stricter.

If you go down this route, your new mortgage could be similar to a lifetime mortgage, meaning it won’t need to be repaid until you move into long-term care or die. If this does happen, the mortgage would be paid off from the money in your estate or by selling the property.

Landlords interested in equity release mortgages should speak to a specialist broker as there are lots of factors to consider.

Repaying and consolidating debts

If you have debts that need consolidating, remortgaging your buy-to-let property is a useful way of simplifying your finances.

You’ll be able to roll your debts into one single monthly payment, which could end up being cheaper than your existing payments.

That being said, some lenders may view you as high risk because you have built up debts. This could mean there are fewer options available and the amount you can borrow could be limited.

It’s important to note that there are risks involved with transferring your debts into interest-only debts as part of a remortgage. You’ll need to make sure you can meet your monthly repayments comfortably, and it’s worth speaking to a mortgage adviser first.

How to find the best buy-to-let remortgage

What a lender will offer you depends on how much you want to borrow and how much equity you have in the property (i.e. how much of the property you own).

How much a lender will offer you is known as the Loan to Value (LTV). For example, if your property is worth £350,000, with £280,000 in equity and you want to borrow £140,000 over 25 years, then your LTV is 40 per cent. But if you wanted to borrow £210,000, then your LTV would be 60 per cent.

Rates, products and terms for buy-to-let remortgages vary considerably. For example, there are lenders who will grant remortgages up to 90 per cent LTV.

To get the best buy-to-let remortgage, you’ll need to have all your finances in order. Here are some of the key things lenders will consider when working out how much they’ll lend to you:

• rental income, capital gains and personal assets
• current equity and the size of remortgage you want
• your credit history and current income

And here are some of the things you need to look out for to get the best deal:

• does your current lender need an early repayment fee before you switch?
• is the new lender offering a fee-free mortgage?
• the higher your LTV, the fewer products are likely to be available

Buy-to-let remortgage rates – what do landlords need to know?

If you’ve finished your fixed or tracker initial rate period, it’s likely you’ll move on to your lender’s standard variable rate (SVR). This rate is usually higher, which is why lots of landlords remortgage when this happens.

For example, if you have a £175,000 interest-only mortgage on a 4.75 per cent SVR, your monthly repayments will be around £690.

If you remortgage at 75 per cent LTV, you could get a new mortgage at an interest rate of around 3.75 per cent. This would reduce your monthly payments to around £545.

Lowering your interest rate by one per cent could save you around £145 a month, with a total annual saving of around £1,750.

It’s also beneficial to keep an eye on the Bank of England’s base interest rate as many products on the market will follow this. If the base rate goes up, your mortgage could cost more and if it goes down, you could save money.

Can you be refused a BTL remortgage?

Most applications for buy-to-let remortgages are accepted without any problems. However, just because you already have a mortgage doesn’t mean you’re guaranteed to get a new deal from a lender.

A common reason for buy-to-let remortgage applications being rejected is failing a ‘stress test’. These are the checks a lender makes to see if you could still afford your repayments if interest rates were to increase significantly.

You could also be refused a buy-to-let remortgage if you have a low credit score or a background financial check brings up an issue such as a County Court Judgement (CCJ).

There are several other reasons why your buy-to-let remortgage application could be rejected, such as:

• having a short lease – if your property’s lease is below 80 years, it may be hard to get remortgage finance or to sell it in the future
• lenders don’t favour flat roofs – because they’re known for needing more maintenance
• Japanese knotweed – any mention of this plant is likely to result in a rejection due to the serious problems it can cause
• being close to late night venues – if your property is close to a nightclub or bar, lenders could see it as high risk and tricky to sell

How can I get a buy-to-let remortgage?

Once you’ve decided you want a buy-to-let remortgage, it’s important to have a clear picture of your financial situation.

How much of the original purchase is outstanding? How much money do you want to borrow? What kind of terms and repayment costs are you looking for?

You’ll then need to start shopping around for the best buy-to-let remortgage deals. Much like you would with landlord insurance, you can compare quotes from various lenders to see what prices, terms and rates are available.

Plan ahead

It can be beneficial to start preparing your buy-to-let remortgage application six months ahead of when you want to switch to a new deal.

If you’re approaching the end of your current deal, this will provide you with a sufficient buffer period to get everything in place so you don’t risk moving on to your lender’s higher standard variable rate.

It also gives you time to get all your paperwork together and pass any relevant checks. As with applying for a buy-to-let mortgage, remortgaging can be a lengthy and complicated process.

That’s why it’s important to give yourself enough time to prepare and get impartial financial advice from a mortgage broker to help you make the best decision.

More guides for buy-to-let landlords

• Energy efficiency guide for landlords – what is an EPC rating?
• Breathing space – a landlord’s guide to the Debt Respite Scheme
• Tenant referencing guide – what do landlords need to know?