Can you remortgage a buy to let property?18-07-2022 | Financial
The short answer to this common query is: yes, it is certainly possible to remortgage an existing buy to let property, as well as to remortgage your current home to buy to let, as a means of renting it out.
However, you will need to think carefully about your needs, and what you hope to achieve from remortgaging. It is also crucial to know about the exact process involved in remortgaging – so, let’s begin to answer some of these questions around remortgaging a buy to let property.
What is remortgaging?
In case you have never remortgaged a property previously, the term simply refers to the process of moving from one mortgage to another. This might entail the property owner staying with their current lender but switching to an alternative product, or they may choose to change providers.
Is remortgaging a buy to let property worth it?
As a landlord, there are various reasons why you might look to remortgage your property. Generally, landlords choose to remortgage for one of two main reasons: in order to reduce the amount they are paying on their mortgage, or to borrow additional funds to enable them to invest.
Below, we have taken a closer look at some of the reasons you might be driven to remortgage your property.
1. You can get a more competitive deal
As you will know if you have ever remortgaged your home, it is a process that can enable you to switch to a more favourable deal with lower interest rates. This would unlock lower monthly mortgage repayments for you.
If – as is the case with a lot of landlords – you are on an interest-only buy to let mortgage, remortgaging could allow you to switch to a lower interest rate. Alternatively, you might transfer to a repayment product, as a way of bolstering your equity in your property over time.
2. You can carry out property improvements
You might be interested in remortgaging specifically as a way to raise funds; you can do this by taking out a new mortgage including both the value that was outstanding on your previous mortgage and the value of the equity you are interested in releasing.
With popular improvements to buy to let properties including the likes of extensions, new kitchens, and additional bathrooms, you might decide that remortgaging would be more than worthwhile in order to attract more tenants and fetch higher rents from your property. Indeed, if you can show prospective lenders that the improvements you have in mind will bolster your property’s value, they might be able to present you with more attractive mortgage deals as a result.
3. You can add to your portfolio
Buying your first buy to let property is a pretty big accomplishment that deserves to be celebrated. Taking on additional buy to let properties can be even trickier to do given the high costs of doing so. The option of remortgaging a buy to let mortgage could therefore be an interesting one, if this could generate the additional funds that would make a further property purchase possible.
If you do decide to remortgage as a means of freeing up the cash needed for portfolio expansion, you can expect the would-be lender to undertake a valuation of your existing properties. This will allow them to determine how much equity you have, and the amount they can make available to you. The levels of additional borrowing you are able to take on through this process will likely depend on such factors as the size of your current portfolio, the rate of tax you pay, and the exact type of product you desire. Options for the latter could include a portfolio mortgage, full remortgage, or second charge.
How to remortgage a buy to let property
The process of remortgaging a buy to let property is not dissimilar to the one for transferring to a new residential mortgage deal. You are advised to start the remortgaging process about six months before the end of your current deal, to give yourself time to thoroughly explore your options.
When you do, you can expect to go through the below broad steps.
1. Determine the Loan to Value (LTV) that you want
In the case of your property having a value of £500,000, for instance, and the amount you wish to borrow being £250,000, the LTV would be 50%. If you care about getting access to the broadest possible range of mortgages with the most attractive rates, you will want to aim for as low an LTV as possible.
2. Shop around for the most suitable deal
Being clear about all of the above should help you narrow down your remortgage options, especially if you work alongside a mortgage broker that can give you the benefit of the most suitable mortgages from across the market.
3. Undergoing a credit check and affordability assessment
The fact that you already have a mortgage won’t necessarily mean it will be easy for you to remortgage. Would-be lenders typically perform a ‘stress test’ in order to determine whether the repayments on the deal would still be affordable for the borrower even in the event of a big rise in interest rates. This can, unfortunately, be a common factor in applicants being turned down for a buy to let remortgage.
Responsible planning, well ahead of time, will help ensure you find the right buy to let remortgage option for your needs and aspirations. Don’t forget, too, the importance of having the most suitable landlord insurance for helping to ensure you protect your investment. Request a callback or ask for a quote today, and we will be pleased to assist you in finding the right insurance policy.
We hope we’ve provided some clarity on remortgaging a buy to let property. If you’re looking for more expert advice for landlords, visit our advice centre. We provide guidance on everything from property access and disputes to legal issues and much more.