If you own rental property and are looking to remortgage it’s important to understand how it works and how to get the best deal for you.
Most of the time, landlords are remortgaging to get a better deal than the one they have with their current lender but there are a number of other reasons to consider. You may want to raise capital for further investment or improvements, get a better interest rate, or even move back into the property yourself.
Getting the best deal available depends on your unique situation. Mortgage lenders will consider factors such as your reasons for remortgaging the property and how you will be able to afford it.
In this article, we look at the process, benefits and considerations of remortgaging your buy-to-let property.
Why Remortgage?
People choose to remortgage buy-to-let property for a variety of reasons. Here are three common justifications:
To Get a Better Deal
Many people look to remortgage when the initial term of their mortgage agreement ends and the interest rate reverts to the lender’s standard variable rate, which tends to be more expensive. Remortgaging at this time aims to get the lowest interest rate possible. This might mean remaining with your current lender, but it is also possible to switch lenders. In either case, there are usually fees associated.
Release Equity
As you pay off the mortgage, or the value of the property increases, the amount you own (known as the equity) increases. You can release this equity when you remortgage by increasing your loan-to-value (LTV) rate. This gives you a lump sum which you can invest in improvements or upgrades to the property or in purchasing another property to add to your buy-to-let portfolio.
Move Back In
FCA rules state that if you have previously been renting out a property but decide that you would like to move back in yourself, you will need to change the terms of the mortgage from a buy-to-let mortgage to a residential mortgage. If this is something you would like to consider, Cooper Associates’ team of specialist mortgage advisors can help.
When’s the Best Time to Remortgage?
The best time to start looking into new deals is 3-6 months before your current deal period expires. This is how far in advance that mortgages can be secured. It also gives enough time for the legal aspects to be carried out which could take up to two months.
If the trend is for mortgage interest rates to rise, it might be worth securing a deal sooner rather than later. However, if mortgage rates are trending down, you’d be wise to wait a while to see if you can get a better deal.
It is worth noting that should you secure a deal six months out from the completion of your deal and the mortgage rates decrease, Cooper Associates are normally able to swap you to these lower rates.
Of course, if your needs have changed and you want to remortgage earlier to get a more suitable deal you can do so, but your lender may charge you early redemption penalties.
What are the Criteria for Remortgaging a Buy-to-Let?
When it comes time to remortgage your buy-to-let property you can expect lenders to evaluate your application in the same way they did when you first purchased the property. You will have a better chance of being approved if you meet the lender’s criteria.
For starters, rental income must be higher than your monthly mortgage payment. This is known as ‘rental coverage’ and typically must sit at around 145% of your monthly loan repayments for a buy-to-let remortgage deal to be considered affordable. The rental coverage amount is also dependent on whether you pay higher additional or basic rate income tax.
Lenders will also assess a landlord’s ability to cover the mortgage payments under adverse conditions ensuring rental income is sufficient even in less favourable scenarios. Many lenders might require the borrower to have a minimum salary, although not all do.
To get the best deal it is strongly recommended that you check your credit report before applying to remortgage so that you can take steps to improve it if necessary. This includes ensuring that your bills are paid on time, you’re registered on the electoral roll, and you have closed any unused credit cards. Having a good credit score reassures lenders that you are less of a risk and can afford to make repayments.
Another consideration is the type of tenant you will attract. Some lenders are wary of covering a loan for student property as the target market is considered higher risk than, say, a professional in full-time employment or a settled family.
How to Remortgage a Buy-to-Let Property: A Step-by-Step Process
1. Give yourself plenty of time. During the application process, you will have to go through an affordability assessment and credit check. Starting the process before your current deal ends gives you plenty of time to evaluate your options and gather the information you need.
2. Find out the loan-to-value rate you require. Borrowers looking for a higher LTV 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 deal because there is less risk associated.
3. Search for the best deal. Often the best deals are only found through a specialist broker who has fuller access to the mortgage market.
4. Submit your application. When you decide on the most suitable option you’ll submit your buy-to-let mortgage application. Your broker can do this for you.
For expert mortgage advice and tailored mortgage solutions get in touch with Cooper Associates today.
What are the Costs and Fees Associated with Remortgaging?
The costs and fees associated with the remortgage include the arrangement fees charged by the new lender and any exit fees due on leaving your old mortgage. There may also be legal fees to pay to cover conveyancing and admin costs.
The best deal requires factoring in all the costs associated with remortgaging. It’s not necessarily true that the best buy-to-let remortgage deals are the ones with the lowest rate. Some deals with low rates have high upfront fees which means that over the initial period of the deal it may not offer the most cost-effective situation.
A specialist mortgage broker has access to deals from across the market so you can choose the best one for you. They can calculate the full cost of that deal (including lenders’ and solicitors’ fees) against the other products on the market to find you the best possible outcome for the range of deals.
Choose the Right Mortgage and Prepare for the Remortgaging Process
Speaking to a specialist buy-to-let remortgage broker can be the best way forward to assess your options and find a lender most likely to approve your remortgage application. At Cooper Associates, our experienced mortgage advisers can assist you with your buy-to-let remortgaging needs by providing expert advice so you can maximise your property investment. Get in touch today.
