Buy to let property investment can be a great earner, both through rental income and capital growth. If you already have a buy to let mortgage, you may be looking to remortgage the property to release equity or find a more suitable mortgage or lender to move to.
Benefits of remortgaging a buy to let property
If you’re looking to remortgage your buy to let property, it’s important to know what the benefits are to help you to choose if remortgaging your own buy to let property is the right decision for you.
The benefits of remortgaging a buy to let property include:
- Freeing up funds to buy another property and grow your portfolio as a property investor
- Helping raise money to renovate a current property
- Finding another mortgage with a better interest rate
What do I need to do to remortgage?
In order to give you the best chance of having your buy to let remortgage approved, it helps to be as prepared as possible. A key thing to think about is that the amount you are asking for your remortgage will have to reflect how much your property is worth. A property valuation will be needed and this will show how much equity is available and what the opportunities for borrowing are.
Before approving your remortgage, your lender will want details of the rental income you get, as well as information on any other properties in your portfolio. It may be useful to organise these before submitting your application.
If you’re looking to purchase a new property with this equity, the minimum deposit for a buy to let property is around 25%. However, the more deposit you have the bigger opportunity there is to get the best rates.
Types of buy to let remortgages
When looking to remortgage your buy to let property, understanding the different mortgage options available to you is important, especially if you want to remortgage to improve your interest rates.
There are four main buy to let mortgages available for remortgaging. These are:
A fixed rate mortgage means your interest rate will stay the same for the duration of the product and offers more certainty and less risk than a Standard Variable Rate mortgage. It also means you can confidently set a fixed rental price to tenants.
If Bank of England interest rates climb, you have the benefit of your rate not increasing however, if they drop below the interest rates on your mortgage you won’t be able to benefit from this.
A Standard Variable Rate (SVR) mortgage doesn’t have fixed interest rates and therefore can carry uncertainty and risk if rates increase. Interest rates are determined by the lender and may fluctuate however these products generally offer additional benefits such as no fees and the flexibility of making unlimited overpayments if this a priority for you.
A tracker mortgage is a type of variable rate mortgage that is linked to and tracks the Bank of England base rate. You can benefit from interest rate savings with a tracker mortgage if the Bank of England interest rates drop, as your mortgage interest rates will reflect this. However, if these interest rates go up, you’ll be subject to payment increases.
A discounted variable mortgage is another type of variable rate mortgage and offers interest rates at a set percentage below the lender’s SVR. Your monthly interest payments could change if the lender’s interest rates change. However, your interest rates will remain at the agreed percentage below your lender’s interest rate.
Can I change my residential mortgage to a buy to let mortgage?
Yes, you can either obtain consent to let from your current lender or remortgage your residential mortgage to a buy to let mortgage.
You would typically require consent to let from your lender if you need to move out of your home temporarily and you intend to move back to the property at some point. Permission is required from your lender or you risk breaching the terms of your mortgage. Lenders will usually charge a percentage rate on top of your existing rate or a fee to provide consent, some lenders will charge both.
If consent to let is not suitable for you as you need a longer-term solution or it is not granted by your lender, you can change your residential mortgage to a buy to let one. Buy to let mortgages require more equity in your home than a residential remortgage and the projected rental income will be considered when assessing affordability.
What fees are involved?
A buy to let remortgage typically comes with a few fees, which will change depending on your lender and the details of your property – for example, higher value properties will have a higher property valuation cost. It’s important to clarify any costs with your lender before going ahead with your remortgage. Fees you may have include:
Also called ‘completion’ or ‘arrangement fees’, mortgage product fees are paid to your lender for setting up your mortgage. Some lenders may allow you to add this fee onto your overall mortgage loan instead of paying upfront.
Your lender will require a property valuation to find out how much your property is worth before agreeing to remortgage. Not all lenders charge for this service.
These are simply the fees you pay your solicitor for helping organise the remortgage, as well as for dealing with the legalities of the process.
You’ll also have letting agency fees and landlord’s insurance to cover while you are going through your remortgage. Make sure that you have enough budget to cover all of these before confirming your remortgage.
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MOST BUY-TO-LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY NOR THE PRUDENTIAL REGULATION AUTHORITY