Remortgaging a Buy to Let Property

Find out if it's possible to remortgage a buy to let property, plus the pros and cons of doing so.

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Refinancing your BTL property

If you are wondering whether you can get a new mortgage on a buy to let (BTL) property, the answer is yes. This might even occur within six months of buying. Here we advise as to how your individual circumstances may affect the process.

Your intentions affect the deal

Lenders tend to treat you differently depending on your reasons for refinancing your BTL property. You may be seeking to release equity, perhaps for home improvements, or you may want to buy another property. Alternatively you may simply want to obtain a better rate. These different scenarios mean that different rates will be available to you.

Restrictions on releasing equity

If you want to grow your property portfolio, buy to let remortgages enable you to free up equity for a part payment or deposit. Landlords are, however, restricted by certain regulations, including those connected with affordability if the landlord pays tax at the higher rate; those connected with portfolio landlords (generally those who own more than four BTL properties); and those where lenders limit the number of buy to lets a borrower can own (generally four to ten). These restrictions reduce the risk that comes with owning a larger portfolio of property.

Remortgaging your existing home to buy a BTL as a way of releasing equity is common. Talk to us for specialist advice whether you seek a full remortgage, a portfolio mortgage or a second charge. We will discuss the various factors and help you to make the right choice.

Property value / loan to value

The LTV ratio can alter considerably as lenders make different calculations. Also the amount you want to borrow and the amount of equity that is in the property is important.

For example, if your property is worth £250,000 with equity of £200,000 and you wish to borrow £100,000 across 25 years, your LTV is 40 per cent. But if you hoped to borrow £160,000 your LTV would be 65 per cent.

Some lenders will grant remortgages to a high LTV percentage. As we work across the whole market, we can contact the right lenders to fit your personal circumstances.

Release Funds

Release funds for property improvement

Most lenders will let you remortgage to free up equity for your BTL property if your intention is to pay for investment in it. This is particularly the case if it is likely to raise the property’s value or rental income. In an up-and-coming area, the sum could be employed to upgrade the property to capitalise on increased rents in the neighbourhood.

Release funds for debt consolidation

If you seek to pay off your debts using the released funds from a mortgage deal, some lenders will LTV and others won’t even lend at all, owing to the greater financial risk.

However, many people do manage to release equity in their buy to lets in order to consolidate debts. It is an easy way to consolidate several debts into a more manageable amount and it can reduce your outgoings considerably.

Remember, however, that changing repayable debts which are unsecured into interest-only secured ones could put the property at risk, so a repayment strategy needs to be in place.

Release funds to buy out a partner

If you have a BTL mortgage, you can consider buying out another party from that mortgage using the equity, or even do the same thing using equity from another property.

This is usually acceptable with BTL lenders and requires a re-application in your own name. This is the case whether you choose to stay with the same lender or change to a new one.

With most lenders, usual LTV limits apply up to 75 per cent; limits may go up to 80 per cent with a few others, while some specialists even hit 85 per cent.

Release funds for commercial purposes

You may want to remortgage a BTL property to capitalise on a commercial opportunity, such as a business venture or commercial building. Be aware that releasing equity for business/commercial purposes is only permitted with some lenders, who may limit the LTV.

Switching to a better interest rate

You might want to remortgage your buy to let in order to shop around and take advantage of the market’s best BTL remortgage deals.

Interest rates can fluctuate, so it is sensible to regularly review your products before the close of their tie-in period and examine the buy to let remortgage rates that are available across the market. Our expert advisors can help you to examine the possibilities.

Remortgaging your home to a BTL

This is known as let to buy, and occurs in the case of ‘accidental landlords’. This can happen when someone moves in with their partner or inherits a larger property, with the former property with its standard mortgage still in place being rented out without a BTL mortgage.

You can either ask your lender for ‘consent to let’, or you can remortgage to obtain the best BTL deal available.

Do be aware that failure to tell your lender that you’re renting your home out without a buy to let remortgage is considered a breach of contract and some lenders may demand complete repayment, which could be financially disastrous.

Can I release equity for other reasons?

Buy to let equity release can be used for almost anything, from renovations, through to a wedding, a holiday or a new car . . . the list is endless.

Remortgaging your BTL to a main residential mortgage

Property owners change from a BTL to a residential mortgage for many reasons. Perhaps you have divorced and now choose to live in the BTL property you own, or you may want to downsize. Maybe you own a smaller BTL property that you want to move into when you’ve sold your main home. If you are seeking to change your BTL mortgage to residential, speak to our advisers who will help you to determine the best course of action.

Key Factors - Personal or Company, Bad Credit, Income

Personal or Limited Company?

Lenders may offer different deals according to whether you’re a limited company or an individual. For investors with portfolios, purchasing property via a limited company may offer notable tax benefits, particularly in the case of higher-rate taxpayers. Ltd company mortgages also suit those who want to purchase property as a collective instead of simply as two individuals and who would like to protect themselves from personal liability if things go awry.

If a trading company wants to buy a property, lenders usually like to see two years’ worth of accounts showing income as well as net profitability. The lender might also ask the directors to supply a personal guarantee. Similarly, in the event of a Special Purpose Vehicle (SPV) - a limited company set up to purchase BTL properties - most lenders require the directors to give a personal guarantee.

In addition, a Standard Industrial Classification (SIC) is required which confirms the property focus of the business. There are complications in using a trading company with other types of operations.

If you have bad credit

The circumstances which constitute bad credit might include:

  • adverse credit file entries
  • mortgage arrears
  • defaults
  • Individual Voluntary Arrangements (IVAs)
  • Debt Management Plans (DMPs)
  • County Court Judgements (CCJs)
  • bankruptcy
  • low credit score
  • repossession.

Bad credit remortgages can be more complex to arrange and some people find themselves being turned away by certain lenders, however, there are others in the market which may be willing to deal with you. This is where we come in: our highly trained team uses knowledge of the market and an extensive network of lender relationships to source the best deal for you.

How personal income impacts a BTL remortgage

Lenders use different criteria in calculating how much they will let you borrow. If you’re a first-time landlord, most lenders stipulate that you must have a minimum income of £25,000 per year for a buy to let remortgage. However, some may accept less. Other qualifying types of income include: bonuses, second jobs, commission, benefits, investments and dividends.

Lenders may also consider outgoings such as:

  • contracts (internet, phones etc.)
  • debt repayments (credit cards, car lease etc.)
  • electricity/gas
  • essentials (food, clothing etc.)
  • school fees.

These are used to confirm the affordability of your new mortgage payment. Some lenders might also take into account your ability to pay the mortgage should the interest rate rise.

Rental income

Your rental income, the value of the property and your personal income are all taken into account. The amount of rental income you can expect depends on many different factors including the condition and size of the property and its location. Lenders only approve buy to let mortgages that they think are affordable. Many lenders ask that the annual rental must be 125 per cent or more of your yearly mortgage repayments. They use ‘buy to let stress tests’ which factor in different interest rates as a way to ensure that you will always be able to repay the interest on the mortgage. Some will require rental income of 145% of the mortgage repayments.

Pressure on Landlords

Buy to let tax relief was once rather attractive, but the tax rates imposed in 2017 have made life harder for landlords. With buy to let mortgages, almost all lenders request that your rental income should cover not just the mortgage itself, but other costs as well. These include maintenance, repairs, agent’s fees and mortgage interest.

Why tenant types matter

The tenant types below may be seen as less favourable by lenders:

  • tenants on benefits
  • houses in multiple occupation (HMO)
  • students
  • council tenants
  • sitting tenants.

Students are known for partying and damage, which deters some landlords. Meanwhile, those on benefits are also seen as a risk, although people on disability benefits are less stigmatised. HMOs can be more appealing to lenders if the tenants are professionals such as contractors.

Sitting tenants, however, are a major stumbling block since they can remain in the property for life and have a right to a low rent. Because of this, lenders will be reluctant to agree to a mortgage.

Property types which affect deals

Lenders feel more comfortable with standard brick-and-slate-roof dwellings. Any deviation from typical construction can influence the sort of deal you get. Non-standard buildings include:

  • certain types of flats (including those above retail premises)
  • high rise buildings
  • wooden-framed homes
  • metal-framed homes
  • thatched roofs
  • stone construction
  • tin roofs
  • felt roofs

For detailed guidance as to how property type may affect your application and how you can get the best deal, please talk to our expert team.

What about Mortgage Rates?

Where are the BTL remortgage rates?

All the remortgage buy to let lenders on the market have different criteria. The rate you can obtain depends on various factors including your credit history, your income, the size of your deposit and how much equity you have. Our mortgage experts can short-circuit the process and identify the most favourable deal for your circumstances.

Allow for rate rises

Right now interest rates are very low, but they could rise in future, so you should consider all the costs that may occur when you own a BTL such as accidental damage, wear and tear, agents’ fees and income tax. The rent you receive has to cover all of these factors, in addition to the mortgage.

Total costs, not just rates

The lowest interest rate isn’t necessarily going to signify the deal that's right for you. Look at the overall costs for new mortgages which include any early repayment charges and set up fees - these can be quite sizeable. If you talk to our mortgage experts, we can help you to favourably balance interest rates and costs and identify an appropriate product.

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