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.
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Can You Remortgage a Buy-to-Let Property?
Yep, buy-to-let mortgages come with fixed terms just like residential mortgages do, so this means you can remortgage once your current deal ends. Likewise, when you apply for a BTL remortgage, lenders will follow the same process as they did initially in that they’ll reassess your affordability and review your rental income.
Although specific requirements may vary a bit between lenders, you’re expected to have owned the property for a minimum of six months, be able to show that your rental income covers at least 125% of your monthly mortgage payments, and to have tenants that meet the lender’s approval criteria (i.e., some may refuse tenants who rely on benefits or are students).
How Do Buy-to-Let Remortgages Work?
When you apply for a buy-to-let remortgage, the amount a lender will offer you is determined by a few factors, but the loan-to-value ratio is the foremost. This is the percentage of your property’s value you want to borrow, which typically goes up to 80%.
Moreover, most of the time remortgaging implies that you’ll be ending your current mortgage agreement, and this process will involve an exit fee, so it’s integral to factor this cost into your plan.
Why Would You Remortgage Your Buy-to-Let Property?
As a landlord, there are many reasons why you might choose to remortgage your buy-to-let property. For instance:
- Releasing equity to access additional funds for property renovations or expanding your portfolio.
- Reducing monthly payments by switching to a lender offering better interest rates.
- Avoiding higher variable rates, since many fixed-rate mortgage deals revert to variable rates after a set period, increasing monthly payments.
Can I Remortgage a Buy-to-Let Property into a Limited Company?
If you’re remortgaging a buy-to-let property, you have the option to switch from holding the mortgage in your personal name to placing it under a limited company. In this setup, the mortgage is taken out by the company itself as opposed to by you as an individual.
This separates personal finances from business interests, and depending on your situation, there’s also potential tax efficiencies, although this will vary and should be carefully considered. It’s worth noting that applying through a limited company is not always the same as a standard personal application, as lenders require additional documentation and could therefore assess the case differently.
If you’re considering transferring a property you already own into a limited company as part of a remortgage, it’s important to understand the implications in that this process is effectively treated as a sale from you to the company, as the ownership is moving to a different legal entity. As a result, costs such as Stamp Duty Land Tax are likely to apply, which will affect the overall decision.
When Can You Remortgage a Buy-to-Let Property?
You can begin reviewing your remortgage options around three to six months before your current deal comes to an end. This period, referred to as the initial rate period, is when your existing interest rate is due to expire.
It’s important not to confuse this with your overall mortgage term. The mortgage term is the full duration over which the loan is scheduled to run, whereas the initial rate period is simply the length of time your current deal applies.
Lenders frequently change their rates and lending criteria in response to demand and wider market trends, so keeping an eye on these movements makes a meaningful difference to the deal you secure.
Do You Need a Bigger Deposit for a Buy-to-Let Remortgage?
Getting a buy-to-let remortgage does generally require a significantly larger deposit compared to a residential mortgage. Similarly, interest rates tend to be higher because lenders face increased risk due to the potential of either periods without tenants, or those where tenants fail to pay rent, both situations resulting in a loss of rental income.
As far as an actual figure goes, a deposit representing 25% of the property’s value is needed for a BTL mortgage in most cases. 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 with this.
What’s the Difference between a Residential Mortgage and a Buy-to-Let Mortgage?
The main difference lies in the fact that residential mortgages are designed for those who plan to live in the property they’re purchasing, whereas buy-to-let mortgages are for those intending to rent the property out.
Another difference is that landlords benefit from lower monthly payments, given that they will typically opt for an interest-only mortgage. Residential mortgages, on the other hand, require full monthly payments towards both interest and principal. This also means, however, that 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 and vice versa can be done, and it’s what’s called a let-to-buy remortgage. This is necessary because a standard residential mortgage doesn’t allow you to rent out the second 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, income which could cover your mortgage payments.
Despite the idea of remortgaging your home to rent it out for extra income seeming appealing, it’s important to know of the associated remortgaging costs before making a decision. In addition to your mortgage payments, you may need to cover letting agent fees to help find tenants too. Lastly, regular upkeep and maintenance are essential to keep the property in good condition and make sure it’s attractive to potential renters.
Can You Be Declined for a Buy-to-Let Remortgage?
While it’s not especially common, a buy-to-let remortgage application can be declined. It’s true that lenders take a more favourable view of properties that are already mortgaged, as they have previously been accepted as suitable security, however, approval is never guaranteed.
There are a number of factors that will affect your chances, like a fall in the property’s value increasing your LTV ratio beyond what lenders are willing to accept, or how in more severe situations this could lead to negative equity. Changes to your financial profile also have an impact, e.g., a deterioration in your credit history limits your options, and more serious issues, such as bankruptcy, make securing a new deal particularly difficult.
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.
Remortgaging a Buy-to-Let FAQs
Buy-to-let remortgage rates do tend to be higher than residential ones, yes. It’s ultimately down to lenders seeing BTL borrowing as a commercial risk because rental income can fluctuate, and there is a chance of void periods. That said, if you’ve got a low loan-to-value ratio and just want to switch to a new deal, then you’ll be able to get competitive rates, including cashback.
One factor that could be seen as a disadvantage is that the fees and charges for buy-to-let remortgages are higher than those for standard residential products, coming as a consequence of the more commercial nature of the borrowing. Then again, landlords sometimes view this as a fair trade-off since the risk isn’t tied to their own home, but rather to an investment property.
Getting a buy-to-let remortgage takes between four and eight weeks from the point of application, although the exact timeframe depends on your circumstances and the type of property in question. If your current fixed-rate deal is coming to an end, it’s sensible to start looking for a new one around three-six months in advance to avoid a higher standard variable rate.
It is possible to move from an interest-only to a repayment buy-to-let mortgage. But, the first step is to check with your lender because not all providers allow such a change. If your lender doesn’t offer the option, then the alternative would be to remortgage with a different provider that allows you to choose a different repayment type.
When assessing a buy-to-let application, lenders carry out what is known as a stress test, which checks whether the mortgage would remain affordable under less favourable conditions, such as a rise in interest rates or a temporary loss of rental income. For instance, lenders will consider how you would manage repayments during periods when the property is unoccupied and so not generating rent.
Remortgaging a buy-to-let involves several different charges, including an early repayment charge if you exit your existing deal before it ends, along with an administration or deed release fee from your current lender. And, when setting up a new mortgage, you’ll also encounter a product fee, legal or conveyancing costs, a valuation fee, and a broker fee if you use professional advice.
About the Author:
Matt is a top contributor at Speedy Remortgage and has worked in the financial services industry for over a decade now. Through his expertise on mortgage and remortgage has helped hundreds of customers to achieve their property goals.