Buy-to-let (BTL) properties are those owned by a landlord and leased to tenants. Unlike standard residential mortgages, which do not accommodate rental properties, a BTL mortgage is required for this purpose.
Remortgaging a buy-to-let property offers landlords an opportunity to lower their expenses and free up capital for other investments. This guide will provide a comprehensive overview of everything you need to know about buy-to-let remortgages.
Table of Contents
Can You Remortgage a Buy-to-Let Property?
Absolutely. Just like residential mortgages, buy-to-let mortgages come with fixed terms, meaning you can remortgage once your current deal ends.
When applying for a BTL remortgage, lenders will reassess your affordability and review your rental income.
Although specific requirements can vary between lenders, common criteria include:
- Owning the property for a minimum of six months
- Demonstrating a consistent history of rental income, usually covering at least 125% of your monthly mortgage payments
- Having tenants that meet the lender’s approval criteria (some may refuse tenants who rely on benefits or are students).
How Do Buy-to-Let Remortgages Work?
When applying for a buy-to-let remortgage, the amount a lender is willing to offer you is determined by various factors, with the loan-to-value (LTV) ratio being foremost.
The LTV represents the percentage of your property’s value and the equity you plan to borrow, which can vary between lenders, typically up to 80%.
Moreover, remortgaging means you’ll need to end your current mortgage agreement, and this process usually involves an exit fee, so it’s integral to factor this cost into your financial planning.
Why Would You Remortgage Your Buy-to-Let Property?
There are several reasons landlords might choose to remortgage their buy-to-let property. For instance:
- Releasing Equity: Access additional funds for property renovations or expanding your portfolio.
- Reducing Monthly Payments: Switch to a lender offering better interest rates.
- Avoiding Higher Variable Rates: Many fixed-rate mortgage deals revert to variable rates after a set period, often increasing payments.
Do You Need a Bigger Deposit for a Buy-to-Let Remortgage?
Yes, securing a buy-to-let remortgage generally requires a significantly larger deposit compared to a residential mortgage. Similarly, interest rates tend to be higher. This is because lenders face increased risk, as periods without tenants or tenants who fail to pay rent can result in a loss of rental income, leaving landlords potentially unable to meet their mortgage payments.
In most cases, a deposit of around 25% of the property’s value is required for a BTL mortgage. To help keep your deposit and interest rates more manageable, it’s worth presenting yourself as a desirable borrower.
Specifically, maintaining a strong credit score and making sure the property has a long lease or freehold status are factors that can help in securing better terms.
What’s the Difference between a Residential Mortgage and a Buy-to-Let Mortgage?
Residential mortgages are designed for individuals who plan to live in the property they purchase, whereas buy-to-let mortgages are for those intending to rent out the property.
One key difference is that landlords often benefit from lower monthly payments, as they typically opt for interest-only mortgages. In contrast, residential mortgages require full monthly payments towards both interest and principal. However, BTL mortgages tend to come with more stringent criteria.
While you can choose a repayment option for a BTL mortgage, which guarantees the loan is fully paid off by the end of the term, it is vital to factor this into your long-term financial planning.
Can You Switch Your Residential Mortgage to a Buy-to-Let Mortgage?
Yes, converting a residential mortgage to a buy-to-let mortgage is a common practice, known as a let-to-buy (LTB) remortgage. This is necessary because a standard residential mortgage typically does not allow you to rent out the property.
You might think about switching to a let-to-buy mortgage if you’re planning to move but want to retain your current property and rent it out to generate additional income. The rental income could potentially cover your mortgage payments.
Despite the idea of remortgaging your home to rent it out for extra income seeming appealing, it’s important to be aware of the associated remortgaging costs. In addition to your mortgage payments, you may need to cover letting agent fees to help find tenants. Regular upkeep and maintenance are also essential to keep the property in good condition and make sure it’s attractive to potential renters.
Get The Best Buy-to-Let Remortgage Deal
Remortgaging your buy-to-let property, or switching your home into a rental, is a significant financial step that requires careful consideration. To ensure you’re making the right decision, it’s crucial to explore all available options and seek expert advice. Our intuitive online platform allows you to easily compare buy-to-let remortgage deals from lenders across the UK, giving you access to real-time information on the best rates.
Once you’ve identified a deal which fits your needs, our team of specialists is here to offer tailored support. We take the time to understand your specific financial circumstances and long-term objectives, helping you select the most suitable remortgage solution.
If you’re unsure or require guidance, don’t hesitate to reach out. We’re here to simplify the process, eliminate any confusion, and assist you in securing a remortgage that aligns with your financial goals.