Remortgaging a Buy to Let 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

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.

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.

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.