Buy To Let Remortgage

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ABC FinanceBuy To Let Remortgage

Author: Lee Hemming CeMAP

20+ years experience in buy to let mortgages

Remortgaging a buy to let property can allow you to release equity, refinance to a better rate and even take out a fixed rate product.

When your existing buy to let mortgage is free from early repayment charges, it makes sense to look around for a better deal. This can be with your current lender, or a new buy to let mortgage lender.

Understanding how to make the most of remortgaging a buy-to-let mortgage is key to a successful application, and ensuring that the effort you go to is worthwhile. This guide will discuss the options that are open to anybody that owns buy-to-let property, and how this can be used to improve your financial situation.

How can I refinance my buy-to-let property?

If you are interested in remortgaging a buy-to-let property, whether to release equity or seek a superior interest rate, contact a professional broker. Remortgaging a buy-to-let property is straightforward on paper, but your application will be met with a great deal of scrutiny by a lender. Industry professionals will secure the best deals that apply to your circumstances and guide you through the process to enhance your chances of a successful application.

Keep reading – interest only buy to let mortgages or 80% buy to let mortgages

How much can I remortgage my buy-to-let for?

The amount you can remortgage a buy-to-let property for depends on a range of circumstances, but the most important is your rental yield.

If you took out your buy-let-mortgage based on a rental yield of 140% of the mortgage payments, but market forces dictate that you can now command rents closer to 160%, you may be able to remortgage at a higher total sum.

Some 5 year fixed rate products may come with a more generous rental coverage ratio, meaning you may be able to borrow more if you fix for 5 years or more.

Lenders will want to know what you plan to do with these additional funds and base their decision on your answer. Acceptable responses could include plans to spend the money on the deposit for another buy-to-let property to expand your portfolio, or to make improvements to the property that will lead to greater yield in the future.

Even if your rental yield remains the same as when you took out the initial mortgage, you may be able to remortgage for a smaller sum if you have made a range of repayments on the loan.

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What rates will I pay on a BTL remortgage?

Most people look to remortgage a buy-to-let property in order to secure a preferential interest rate. Most mortgage lenders offer a fixed interest rate for a set time before moving customers onto a higher variable rate.

Regularly switching to a new provider means taking on a new product, and thus avoiding these price increases. Before committing to a remortgage, however, discuss your options with your existing lender.

If you explain that you are considering remortgaging, your current lender may consider extending your existing terms and matching a rival’s offer to maintain your business.

Will I qualify for a buy-to-let remortgage?

If you qualified for a buy-to-let mortgage in the first instance, and you have managed to keep up with your repayments and your personal circumstances have not drastically changed, there is little reason why you will not qualify for a remortgage.

Some changes to your situation may disqualify you from remortgaging, or impact upon the offer that you will receive. Examples of this can include:

  • Changing jobs – if you’re currently in a new role and are in a probationary period, some lenders may be unwilling to lend.
  • Switching from salaried, full-time employment to self-employment or retiring. A lender will consider you a higher risk in these circumstances.
  • A drop in earnings compared to when you took out your initial loan, or a market crash which means you can no longer attract the same rental yield.
  • Reaching an age that means your mortgage term will take you beyond the government-sanctioned retirement age.
  • You have accrued substantial unsecured debts since you took out the initial mortgage agreement, or experienced some kind of financial hardship.

Remortgaging to release equity

You can usually release equity in property acquired on a buy-to-let basis if the loan-to-value ratio is 75% or higher.  Lenders will assess these applications on a case-by-case basis, and if your request is approved, you can take out a new mortgage that leaves you with funds to spare.

An example of this could be that you own a buy-to-let property valued at £200,000, with an outstanding balance of £100,000. If you apply to remortgage at a total loan value of £120,000, you will pay a 40% deposit and still have an additional £20,000 to your name.

Frequently Asked Questions

It is unlikely that you will be approved for buy-to-let refinancing if you have owned the property for less than six months.

If you entered into a mortgage agreement less than 24 months ago, you will also likely need to pay a financial penalty to refinance in the form of an early exit fee.

This really depends on your personal circumstances – remortgaging a buy-to-let property is not always fiscally prudent.

However, if you can take out a new mortgage with a different provider at a preferential interest rate, and your cash savings will not be cancelled out by any early exit fees applied by an existing lender remortgaging can be a worthwhile endeavour.

Some lenders will allow you to use a tenanted buy-to-let property as collateral for a secured loan, whether that’s for business or personal use.

Note the use of the word some here, as your options will be more limited than they would be with a residential mortgage. Team up with a reliable broker like ABC Finance to find a suitable lender for your circumstances.

Most lenders that would consider remortgaging a buy-to-let property will demand a loan-to-value (LTV) ratio of at least 75%. This means that you will need to have a minimum equity of 25% of the mortgage before qualifying for lending.

Most lenders will allow you to take out a buy-to-let mortgage or remortgage through a limited company that acts as a special purpose vehicle. This means the property will be owned by a company rather than an individual, and this business will also collect any rental payments due.

This can be an effective way to separate your personal and professional finances, and there are a range of tax benefits to maintaining an SPV buy-to-let mortgage, buy you’ll likely need to provide a personal guarantee and these mortgage products tend to be costlier than those offered to individuals.

All lenders have their own policies surrounding the age of borrowers they are happy to work with. Most will only work with customers aged 21 or older, though some will not consider buy-to-let borrowing from anybody younger than 25.

When it comes to an upper age limit, you may need to answer some questions surrounding how you will continue to service your mortgage repayments when you exceed the government-mandated retirement age.

Most lenders will allow you to take out a buy-to-let mortgage up to age 85, while a handful have no upper limit at all.

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