Buy to Let Remortgage
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Buy to Let Remortgage
Dion Stocks talks to us about the Buy to Let remortgage process.
Can you remortgage on a Buy to Let?
Yes, absolutely. It’s the same principle as with a residential mortgage. So if you’re on a fixed rate deal for two, five or possibly 10 years, when you come to the end of that term you would switch to the standard variable rate (SVR). That is going to be a lot higher, and your monthly payments are going to increase.
So you want to be talking to your broker at least six months beforehand. We will look at the market and the offering from your existing mortgage lender to see if we can beat it, and lock in the rate offered for the next six months, to avoid you going onto that SVR.
Why remortgage your Buy to Let?
Avoiding that SVR is one reason, but there are various others as well. You may be looking to capital-raise and take out money from the property – either to purchase another or perhaps invest in another business interest.
You can take equity out of the property as long as you don’t exceed the Loan to Value ceiling for that particular product. That may be 75% or 80%, depending on the lender. So if you’re currently mortgaged at 60%, you could take out another 20% to 25%.
You may want to change the operation of your Buy to Let – you may be on a straight residential mortgage but you want to change the rental type to serviced accommodation. Or you may have plans to convert it into a House in Multiple Occupancy (HMO) or into a holiday let, depending on the area.
The lender you’re with may do that, but some of these operations may have niche lenders that will offer better rates than your current provider.
How do I remortgage my Buy to Let? What’s the process?
I would always advise speaking to a broker. You can do it yourself, but a broker will obviously take the headache away. They will process that mortgage application and look after all the details.
Talk to your broker about six months beforehand and discuss what you’re wanting to do: a straight remortgage or to capital raise.
Again, it’s the same process as with a residential mortgage. You’ll start with a fact-find meeting – unless you’re with an existing broker who knows you. In that case you may have a brief conversation about anything that has changed.
Then the broker will ask for your documentation and ID so that when the application goes in he can give that to the lender. The product may come with free legals, which is good, but there are various other costs such as the application fee or product fee, depending on what the lender calls it.
You may have a valuation fee to pay as well. Once the application is in it could take anything from an hour to a day to a couple of weeks, depending on the situation.
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Can I be refused a Buy to Let remortgage?
Whether it’s in personal name or limited company will affect how the rental income is stress tested. That’s how lenders assess it, to make sure the rent covers the mortgage payments. They’ll want to know that you have an income in the background.
If you’re remortgaging with your existing lender, they may stipulate that you need a £25,000 annual income. You may have dropped your salary for whatever reason, in which case you won’t fit their criteria. Or, you can be refused if the rental income does not pass the stress test. It might be that rents have gone down in that area.
Fortunately, we’re in a position at the moment where rent is at an all time high [podcast recorded in May 2024]. But on the back of that, interest rates have gone up, which has put pressure on the stress test. What did pass quite easily before is now not so easy. So if you run into problems, you’d have to look at increasing the rent or finding another lender that has a less stringent stress test.
How long does it take to remortgage a Buy to Let?
It depends on the lender. Some are very digitally driven and accept online applications. They draw everything together in the background and process everything online. They can look at your credit history and your bank statements from a central database. They can also do an online valuation in a matter of hours.
Other lenders are more manual and will insist on having those documents sent to them. They will review them, and set service level agreements for that review period. If it’s a remortgage where you’re shifting from one lender to another, their legal team looks at everything in the background and does the due diligence on the property.
So it varies from lender to lender. Often it’s turned around and completed within two working weeks.
Are there any other costs involved when it comes to remortgaging your Buy to Let property?
If you’re going with a broker for the first time, there may be a broker fee. With clients who are returning to me, I give them a discount.
But the key thing is the product fee, which can vary from lender to lender. Some of the more specialist lenders have product fees of between 2% or 3% up to 5% or 7%, depending on the model of Buy to Let borrowing. Then you’ve got the valuation costs and legal fees.
Do you have to pay stamp duty when remortgaging a Buy to Let?
No, because you’re not buying the property again. All you’re doing is refinancing what you’ve already got. Even if you are capital raising, you wouldn’t be paying stamp duty again.
The only instance where that may occur is if you are looking to transfer the property from your personal name into a Buy to Let limited company or special purpose vehicle (SPV). Effectively, the company is buying the property from yourself as an individual.
What are the benefits of remortgaging a Buy to Let property?
First and foremost, whether it’s two years or five years after taking out the original mortgage, when you remortgage you’re taking advantage of the rates on the market at that point in time.
We’ve been a bit stuck recently, with interest rates going up, but hopefully in the next year or two they may start to drop slightly. Obviously the knock-on effect is that your monthly payments come down, so you’re getting a better deal.
Also, lenders change their criteria all the time. You may be with a lender because last time they were one of two or three on the market that would look at you. But perhaps now there may be another five or six lenders that want a share of that market, so you have more options.
How can a mortgage broker help with a Buy to Let remortgage?
A broker can hold your hand through the process, as with any mortgage. Because we’re in this day-to-day, we will take all the headache away. We can guide you on any hidden costs that you’ve not thought about.
We’ll see if you have considered all the options. For example, If the energy rating of your property is low, such as a D, you may be able to bring it up to a B or C. The government has kicked that down the track recently in terms of legislation, but it’s still there in the background – so that might be something to consider.
A lot of my landlord clients are doing that now – they’re biting the bullet and incurring costs to bring the standard up because it benefits the tenant. Their energy bills come down and that could keep them in the property for longer.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
